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Deposit for Manufacturer Order
I have a question regarding the industry standard for a manufacturer agreement and deposit down for an order. I have a manufacturer that I have been working with and we are now ready to manufacturer my product. They will manufacture, fill, label and bulk pack my product. However, the manufacturer wants full payment for the order up front. I am uncomfortable with the request, and although I have drawn up my own manufacturer agreement to cover me, I am worried that they still can cause me all kinds of grief once they have the payment. What is the industry standard and what should I expect?
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6 Replies
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Half up front seems much more reasonable. You need to maintain some leverage to ensure the product meets specifications. Or at least get some guarantee on what happens with a batch that does not meet specifications.
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I have to agree. Generally my clients will pay 50% down and 50% on delivery. I have however seen some exceptions. Are you running a smaller batch size (<2500 units)? Is there some exotic ingredient there which will cost the majority of the raw material costs? This occurs sometime when the Manufacturer doesn’t have a relationship (credit terms) with the chemical supplier and it has a healthy Minimum Order Quantity.
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I would have to agree with the 50% down policy as being typical. There would have to be a valid credit reason to not make this arrangement. If your company is relatively new, with little credit history, and you are not contracting for the job personally, I could see this happening - it’s not unheard of. But it does mean that this arrangement is near zero risk for them and almost 100% risky for you - if they screw up and refuse to fix it, all you can do is sue, which could take years.
Typically, the 50% down covers most if not all of the cost of the materials and overhead, so there isn’t much risk for the manufacturer in getting the other 50% on delivery. There is some, however.Perry is right that you really need some financial leverage on top of a manufacturer agreement. You might ask if they’d be willing to accept say, 60 - 70% upfront and 30-40% on approval. (They will send a sample of the finished batch for approval - you will have to pay the balance in order to get them to fill, label, pack and ship your product). This would be even less risk for them than 50/50, and less risky for you as well.If they are are unwilling to bend, it may be time to find a new manufacturer. It may even be time to consider paying a little extra in total in order to have that 50% leverage… -
As a manufacturer we get 50% down from new clients.
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Related question: how to verify if the manufacture is legit? if a manufacturer company (seller) sign a sale of good products with a buyer, what information as a buyer want to see to make sure the manufacturer is legit?
buyer had never done business with seller before.
solution: require which document to proof? Tax documents? manufacturer license?
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I visit all my manufacturers and meet them personally. I visit their manufacturing labs and their storage depots.
I check for the Tax documents with relevant authorities.If they are outside the country, I ask the embassy in my domain.
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