they should have never needed a loan from bank to cover checks with sound management there should have been money in the account!!! where did all the money go that they made?
I’ve posted this several times before and I will post it once more for those that missed my previous posts and for those that don’t understand how the international fur auctions operate.
NOTE - I am using simplified hypothetical numbers to make the math easy.
NAFA sells 30 million dollars worth of fur at an auction. After taking a 10% commission, they owe the shippers that sold goods 27 million dollars.
On prompt date, which for NAFA is 3 weeks after the last day of the sale, they issue checks and direct deposits for the full 27 million dollars.
Not all buyers make payment in full by prompt date. As outlined in the conditions of sale - which is published in each and every catalog - a buyer can make a 35% deposit to hold his purchases until he finishes paying for them. Goods are NOT released until they are paid for in full.
So, if NAFA has only collected 10 million dollars by prompt, they have to come up with an additional 17 million dollars to cover the payments they are making to the shippers.
This is where the bank factors in. NAFA had an arrangement with a bank to cover the extra 17 million dollars in payments. Which they have been doing for previous sales for any number of years. And everything has worked fine in the past. No problems.
For some unknown reason, after the August sale, without any warning, the bank stopped honoring NAFA checks when the NAFA account was at zero. They basically reneged on the agreement they had with NAFA.
This is NOT bad financial management on NAFA’s part. This is a problem the bank caused by not honoring the agreement with NAFA.
IF all the buyers paid their invoices in full by prompt date, NAFA would have had the money in the account and there wouldn’t be this problem.
But the is, not all buyers pay in full by prompt. Some take a year or so to pay. And some never pay at all. In the meantime, NAFA has paid all shippers in full. And where is NAFA supposed to get this money - from a bank of course.
If folks aren’t able to understand how the system works, I’m sorry. It doesn’t seem to be that complicated to me.......