Using your customer base can deliver an encouraging foundation of early funding for your business. By using pre-sales (also known as advanced sales), you can direct a very forward approach to trying to fund your company. While some would call it “wishful thinking”, many companies have been very successful in using the pre-launch method: receiving money from your buyer before you deliver, or even develop, their good or service. Almost like an “I owe you,” you are promising the future exchange of your product for up-front cash today. Finding buyers under this technique could prove difficult, but, with a compelling enough pitch or product, a big enough sales order could provide your business with the finances necessary to jumpstart the project.
A regular example of “pre-sales” are housing sales. The buyer enters an agreement with a contractor to build a home within a timeframe and provide the money before the finish of the project. The money given before or during the project allows the contractor to buy necessary tools and equipment as well as sustain payroll – something that would have been very difficult, or near impossible to do, if they were paid when the home was finally finished.
Also known as Vendor Financing, this type of financing is when you receive capital directly from a supplier. It is one of the most popular types of alternative debt financing methods where vendors sell you a product that you do not have to pay for right away – buy now, pay later. To finalize the transaction, you have two options: to either pay the debt back in full, or pay back periodically with interest. This allows you to start generating revenue from your personal sales without having to take the monetary hit that could have tied up other financial obligations and resources.
This type of financing is utilized by suppliers so that they can mainly create a new customer base from your business. They understand the hassles of early business costs and play this to their advantage to create loyalty and commitment from their buyers.
If money is extremely tight, ask your suppliers how they feel about Supplier Financing. Stay in a good relationship with them and pay your bills on time as to avoid losing their trust and service.