A first US wholesale order can look profitable and still leave a European brand short of cash.
The factory wants a deposit. Freight and import costs need funding. The buyer pays later. If the buyer reorders before the first invoice is paid, the brand may have to fund two production runs at once.
For fashion and home brands entering the US, payment terms belong in the price discussion from the start. They decide how much cash the sale ties up, for how long, and who carries the risk.
Put the dates beside the margin
Before accepting an order, build a cash calendar: supplier deposits, production balances, shipment, delivery, invoice approval and the date payment becomes due. Add the costs your business actually carries under the agreed delivery terms.
Then put a possible reorder on the same calendar. The useful number is the largest cash shortfall before buyer payments arrive.
A simple illustration, not a client case: a $30,000 order costs $18,000 to produce and deliver. A 30% buyer deposit brings in $9,000, leaving $9,000 to fund before the balance arrives. If an identical reorder must also be produced before that payment, with another 30% deposit, the combined gap reaches $18,000. Without either deposit, it reaches $36,000.
This simplified example excludes overhead, tax, financing charges and delays. It shows why a positive margin does not answer the cash question.
A deposit funds part of the order
Advance payment shifts some funding to the buyer. Full payment before shipment removes the seller's exposure to buyer non-payment on that sale; a deposit only reduces it.
The International Trade Administration also notes the commercial trade-off: buyers may prefer suppliers offering later payment. The right question is how much credit your business can afford to extend to this buyer.
Write down the deposit, the balance-payment trigger and what happens if the order changes or is cancelled. Do not leave the unpaid balance hanging on an undefined acceptance step.
Open account means you are extending credit
Under open account terms, goods are shipped and delivered before payment is due. The ITA guide describes 30, 60 or 90 days as common intervals in international sales. Those are examples, not a recommended term for every US buyer.
Define when the clock starts: invoice date, delivery or another agreed event. Check the buyer's creditworthiness and set a limit on the total unpaid balance, including reorders. Establish which documents the buyer needs to approve the invoice and how deductions or disputes will be handled.
Credit insurance and receivables financing may help manage the exposure. Check availability, fees, exclusions and recourse with providers serving your company. Payment protection and cash to fund production are separate needs.
Consignment keeps your cash in the stock
Consignment is different from a firm wholesale sale. Under the arrangement described by ITA, the exporter retains title until the distributor sells the goods, and payment follows that sale. Unsold inventory may produce no payment.
If you consider it, agree the reporting schedule, settlement dates, stock checks, insurance, markdown authority and the handling of returns and unsold goods. Get legal advice on ownership and creditor risks in the relevant US state. A contract label alone should not be treated as protection.
Agree the funding before promising the restock
A smaller opening order, a deposit, shorter terms or a funded credit line can each reduce the gap. Compare the total cash exposure and financing cost, alongside the unit margin.
The Trade Finance Guide is written for US exporters. Its payment-method definitions are useful here, but its US government financing programs should not be assumed available to a European exporter.
Before saying yes, know when the cash leaves, when it returns and how the next production run will be paid for. A first order should leave room for the second.
Sources
- International Trade Administration: Trade Finance Guide
- International Trade Administration: Methods of Payment
- International Trade Administration: Cash-in-Advance
General commercial guidance, not legal or financing advice.
Photo: leeruri / Unsplash.