Pre-Purchase Programs: The Working Capital Tool Most Seasonal Operators Don't Know They Have

In most industries, when a producer builds inventory for a customer — especially under that customer’s brand — they get paid at or near production. That’s standard in food co-packing, contract manufacturing, and most B2B supply chains. But in a surprising number of sectors, particularly those that grew out of small-scale or family operations, the terms run the other way entirely. The producer bears the full cost of raw materials, production, and warehousing, then ships when the season arrives and waits 30 to 90 days for payment. In some cases, the gap between production spend and cash receipt can stretch to seven months. The distributor gets inventory on their schedule under their brand, and the producer funds the entire cycle.

We worked with a client in exactly that position — a seasonal co-packer whose industry norms had them carrying six-plus months of production cost before seeing a dollar of revenue. The terms weren’t the result of negotiation. They were simply how things had always been done, inherited from a time when the producers were small family operations with no leverage and no alternatives. But the business had grown, the product was reliable, and the customer base depended on consistent allocation every season. The leverage had shifted. The terms hadn’t.

The structure we developed was a pre-purchase program. Customers could commit to up to 50% of their requested capacity in advance, at a modest discount to current pricing — in this case, around 5%. In return, they locked in their full allocation and secured priority over non-participating customers. The message to buyers was straightforward: commit early and you guarantee your supply at today’s price. Wait, and you pay more — with no guarantee that your full volume will be available. Meanwhile, prices were scheduled to increase ahead of the buying season, which gave the discount a natural shelf life. For the operator, the math was immediate: pre-purchase payments funded the summer build season, replacing what would have otherwise required a credit line or personal capital. The discount cost less than debt service, and the program created a direct incentive for customers to behave in ways that made the business more predictable.

The broader lesson is one we return to often in our advisory work. The best operational improvements frequently come from importing structures that are routine in one industry but unheard of in another. Payment on production is standard almost everywhere — if it isn’t standard in yours, that’s not an immovable fact. It’s a term that can be renegotiated, especially when you bring the structure to your customers rather than waiting for them to offer it. If you’re a seasonal operator spending months funding inventory on your own balance sheet, it’s worth asking a simple question: would your customers pay earlier if you gave them a reason to? In our experience, the answer is almost always yes.