The retail chain typically pays for the kitchen roll 90 days after the rolls are delivered. However, the reprocessor is obliged to pay the distributor for the raw material at the point of dispatch from its warehouse. This 90 days’ working capital requirement of the reprocessor, who has a growing order book, has put huge strain on the reprocessor’s finances. Although its factory has the capacity to meet growing demand, it has been held back by a lack of sufficient working capital.
The Chinese manufacturer requires partial payment prior to the start of the manufacturing process and full payment before releasing the finished products from its factories in China. Previously, the client funded its partial payments in cash and the remainder using documentary credits to resolve the funding gap in its supply chain.