Zenith Insured Credit Offers “Supply Purchase Credit” Program for Furniture and Mattress Manufacturers

Furniture World News Desk on 2/25/2019

New  York-based Zenith Insured Credit announced that it is reaching out to furniture, mattress and bedding manufacturers and suppliers to introduce their supply purchase credit programs. This non-debt supply purchase financing structure is specifically geared to provide off balance sheet credit to manufacturing businesses that need raw materials and components for larger or timely orders to expand their business, or to take advantage of a cyclical increase in business.

A prime example might be the purchase of polyurethane or latex foam for upholstered furniture or mattresses and pillows. This typical situation would involve a mattress or sofa manufacturer needing to purchase supplies (in this case polyurethane or latex foam, innersprings, or textiles) in order to fulfill a retailer’s purchase order. Zenith would pay 100% for these raw materials, hopefully providing a volume discount from the supplier, and they would invoice the manufacturer with a mark-up based on mutually agreeable terms. This type of financing transaction is structured as a “cost of goods sold” and is not considered a debt on the manufacturer’s balance sheet. It has no effect on current or future bank debt.

The common alternative for the manufacturer is conventional purchase order financing. However under these terms the manufacturer needs to front 20-30%  of the overall purchase of materials and supplies, and the payment received on the invoice to the retailer must be paid to the lender.

Zenith’s supply purchase financing does not track the specific purchase order or invoice.  Repayment relies on the cash flow of the manufacturing company. This financing even allows a manufacturer to purchase raw materials and component supplies for inventory.

How it Works for Bedding Manufacturers
A bedding manufacturer has a growing business or is experiencing a seasonal increase in business. In order to support this growth, the bedding manufacturer needs to buy materials, but they cannot take on more debt. In fact, they may not even be allowed or eligible to borrow any more money. or extend the supplier’s line of credit. Additionally, they may not be able to layout 20-30% normally needed if they choose a purchase order finance arrangement. Zenith’s program solves these problems. Zenith pays 100% for these raw materials.

An example is that Zenith would pay x dollars for foam from the manufacturer’s preferred foam supplier. Zenith then resells it immediately back to the manufacturer at an agreed to higher price and negotiates payment terms typically for 3 to 6 months. The bedding company should negotiate a discounted cost from the supplier for this bulk purchase, which may offset the cost that Zenith charges for fulfilling the purchase orders. The bedding manufacturer gives Zenith a post-dated check for the purchase dollars owed.  The needed foam supplies are delivered to the manufacturer to fulfill a large contract order to meet the needs of a key retailer.

Very importantly, the purchase of these vital supplies is treated as a “cost of goods sold” for the manufacturer and not as debt. The manufacturer does not increase debt on their balance sheet, and they have financed 100% of the needed supply purchase. They would not violate any debt restrictions or covenants that may exist.  According to Zenith spokesperson Cole Reifler, “Our clients do not need a great balance sheet, but they do need to demonstrate that they pay their bills on time, and that they have the cash flow to pay us back. Zenith prefers clients who need supplies over a relatively short period of time totaling $500,000 or more.”

Distinct Advantages Offered to Manufacturers By Zenith’s Off Balance Sheet Supply Purchase Program
Some of the unique, distinct advantages that Zenith’s supply purchase credit program offers furniture and mattress manufacturers include:

The Zenith purchase covers 100% of the suppliers’ invoice to the manufacturer and gives the manufacturer optimal bulk pricing advantages. While a manufacturer can go to a bank, they may not qualify for a loan. If they do qualify for a loan, they still may face restrictions, and bank loans can often take quite a long time period. This could interfere with time driven order delivery dates required by the retail customers. Manufacturers could also go to a purchase order finance firm. Most likely the firm would advance 70% or 80% of the needed supply purchase leaving the company with having to still come up with the remaining 20% - 30%. Also, the rates might be quite high and payment terms unattractive. Additionally, the repayment is tied to a specific retail order contract as opposed to Zenith’s reliance on terms driven by due diligence and the manufacturer’s general business conditions and cash flow.

For more information, visit zenithinsured.com