From the factory floor to the retail store nearly every link in the licensing supply chain is facing a cash crunch.

“We started from a real low point. So low in fact that several days into the lockdown, I announced on LinkedIn that my business took ‘five years to build; five days to break,’” said Will Stewart, Managing Director of UK-based agency The Point.1888 in a recent blog post. “If we could control the cash, our business could survive. This is all we focused on for eight weeks.”

Caught in the middle
Licensees are caught in the middle of a three-way squeeze among:

• cash-strapped factories that once extended credit for 30-60 days, but now are asking that 20-40% of an order be paid in advance with another 15-20% due upon shipment;
• licensors seeking payment of guarantees, and
• struggling retailers seeking 90-120-day payment terms versus the more standard 30-60 days.

“We are getting through this OK, but it’s not easy and a lot of hard work goes into micro-managing our shipments and vendors,” said Basic Fun CEO Jay Foreman. “We are a medium-size toy company and not overly flush with cash, and while we are in good shape, we weren’t ready for what is going on.”

Temporary lifeline
Many U.S. companies were given a lifeline in March via the federal CARES Act’s Paycheck Protection Program, but that program is due to end Aug. 8. For licensees, that’s just days after Q2 licensee payments are typically due to licensors on July 31.

“The PPP money and other programs have enabled many companies to continue paying their bills on time at some level with much reduced revenue,” says Terry Keating, CEO at Accord Financial, a factoring firm. “When we get into August [when the program expires] and September, that is when it is going to be more of an issue. We are getting [from retailers] everything from ‘I can’t pay you now’ to ‘I need 180 days.’ What do I do with that as a factor?”

For the most part, licensors have been granting 3- to 12-month contract extensions and postponing payment requirements 2-6 months, say industry executives. In some cases, guaranteed minimums have been restructured to be based on actual — rather than forecast — sales, says Concept One’s Sam Hafif.

“We accepted that all licensees needed relief on MGs and moving these is easy,” said The Point.1888’s Stewart.  “It’s just about being kind and understanding – yes, we would like to get paid to help us survive, but they need to not pay us so that they survive. So it’s all about being honest and open and working collaboratively to find a solution that works for both parties.”

On the retail side, licensees selling to financially troubled chains are being required to get approval from their lenders before shipping orders, and then only then with an advance payment and 15-day terms, say licensing executives. And for licensees used to getting FOB orders from retailers there is inherent risk in assuming responsibility for shipments.

“If it is a tried and true product and a retailer has been selling it for a long time, they will give you an FOB order, so you don’t have to worry about financing the merchandise,” says Foreman. “But with new products the retailers have no [sales] metrics, so I have to decide ‘Do I buy 100,000 pieces without a guaranteed order?’ I can only borrow against purchase orders and that is where the cash flow issue has been coming in” during the pandemic.

Stewart compares the current industry crunch to the birth of his agency: “It’s largely how I started the business — I saved up and then worked out my burn rate and calculated how long I could survive in business before I had to get another job. Luckily that never happened, and we are nearly 6 years in now.”