Today, if you are a manufacturer you are taking a massive risk in product development, and absorbing large production costs upfront, to then spend money again in sales-marketing to push your product to the market, and see if it is going to actually sell or not. But your financial investment doesn’t stop here… most of wholesale transactions are dictated by 30-90 day (and in some cases 120-day with the major retailers) payment terms, which increases the pressure on the manufacturer’s cash flow.
This Net-30+ “rule” appeared after the industrial revolution where small local stores simply couldn’t afford to purchase upfront a large inventory of a specific product, so the wealthy manufacturers started granting merchants credit to “unlock” the situation. But with time, stores got bigger, and the market consolidated, giving rise to the large retail chains that exist today. Those large players are profitable enough nowadays not to need any credit lines, and definitely don’t need suppliers to eat up 120 days of cash flow to their benefits.
As the internet gained dominance, and the rise of e-commerce became the norm, this transformed everything within the industry. Merchants now have the ability to sell products within minutes to hundreds and thousands of end consumers all around the country and the world.
This old payment term system is a burden that suppliers still have to bear today in any industry, and because of the default risk it represents, suppliers need to vett those new prospect buyers, which often takes as much as two months, limiting the number of new relationships that can be formed. As a consequence business on both sides of the market is slowed down. Moreover because of the risk of losses involved with any new product launch, suppliers incorporate that into their overall pricing, hurting further the demand.
To eliminate this major market friction, at Sonder we select both merchants and suppliers during our on-boarding process, and validate the legitimacy and reliability of all our users prior to any transaction opportunities. Being comfortable with the credit risk on both sides of the transaction, enables us to pay suppliers upon shipping, and consequently free up 30+ days of their cash flow and facilitate more orders.