Lessons · Lesson 2 of 6
- 01 · The order that paid well and nearly closed the factory
- 02 · A margin problem and a timing problem need opposite remedies
- 03 · Why a good year is the dangerous one
- 04 · What one day costs, and which day it is
- 05 · Six levers, priced — and who owns each one
- 06 · Buying days: the discount that cost more than the gap
A margin problem and a timing problem need opposite remedies
Two orders in the same factory, one with the better margin and the worse cash, and the arithmetic that tells them apart.
Lesson 2 of 6 · 22 min
Two orders, one line
In February 2026 Kalabsha's commercial manager had two confirmed orders. He had enough capacity for both. He did not have enough cash for both at full stretch. One of them had to start late.
- PO VLD-2209, Vindelund. 28,000 pieces, FOB USD 11.85, order value USD 331,800.00. Cost-sheet margin USD 45,556.00, or 13.73%.
- PO ELV-7743, Elverdinge, a Belgian workwear brand. 40,000 poly-cotton work shirts, style KSP-6240, FOB USD 7.25, order value USD 290,000.00. Cost-sheet margin USD 46,980.00, or 16.20%.
He read the two cost sheets, saw 16.20% against 13.73%, and started Elverdinge first. Every step of that was correct. He compared the two documents the company produces for exactly this decision. He used the number those documents exist to give him. He chose the bigger one. Nobody in the room made a mistake.
The decision was still wrong. This lesson is the arithmetic that shows why.
The Elverdinge calendar
Elverdinge's shirt uses a nominated poly-cotton. Nominated means the buyer names the mill and the factory has no choice about it. That mill will not start without full payment. And the buyer pays at 120 days from the bill of lading, not 60.
| Date | What happened | Cash out |
|---|---|---|
| 4 Feb | Fabric, 100% in advance | 133,660.00 |
| 18 Feb | Trims, 100% with the order | 24,400.00 |
| 21 Apr | Fabric delivered | — |
| 15 Jun | Wages and overhead, cash mid-point | 78,000.00 |
| 3 Aug | Freight, documents, port | 6,960.00 |
| 12 Aug | On board | — |
| 10 Dec | Elverdinge pays, 120 days from the bill of lading | — |
Use the same method as lesson 1. Multiply each outflow by the days it waits for 10 December. Add up the dollar-days. Price them at the same illustrative 12.0% a year:
- 133,660.00 for 309 days = 41,300,940
- 24,400.00 for 295 days = 7,198,000
- 78,000.00 for 178 days = 13,884,000
- 6,960.00 for 129 days = 897,840
- Total: 63,280,780 dollar-days. At 12.0% on a 365-day basis that is USD 20,804.64.
Side by side
| Vindelund | Elverdinge | |
|---|---|---|
| Pieces | 28,000 | 40,000 |
| FOB | 11.85 | 7.25 |
| Order value | 331,800.00 | 290,000.00 |
| Margin on the cost sheet | 45,556.00 | 46,980.00 |
| Margin on the cost sheet, share of FOB | 13.73% | 16.20% |
| Days, first cash out to cash in | 193 | 309 |
| Dollar-days | 39,429,684 | 63,280,780 |
| Average cash tied up | 204,298.88 | 204,792.17 |
| Cost of funding, at 12.0% a year | 12,963.18 | 20,804.64 |
| Margin after finance | 32,592.82 | 26,175.36 |
| Margin after finance, share of FOB | 9.82% | 9.03% |
The order that was 2.47 percentage points better on the cost sheet is 0.79 percentage points worse in the bank account. And the two orders tie up almost exactly the same average cash, around USD 204,000 each. So the factory could have had either. It chose the one that pays less.
The per-piece view is sharper still. Funding costs Vindelund USD 0.4630 a piece against an FOB of USD 11.85, which is 3.91% of the price. It costs Elverdinge USD 0.5201 a piece against an FOB of USD 7.25, which is 7.17%. So the cheaper garment is not the cheaper garment. A low FOB carries the same calendar as a high one, so finance eats a bigger share of it.
Return on the cash, not return on the sale
There is a fairer comparison than either margin figure, and it is the one a bank would make. Take the margin after finance. Divide it by the average cash the order tied up. Then turn it into a yearly figure using the length of the cycle:
- Vindelund:
32,592.82 / 204,298.88= 15.95% over 193 days, which is 30.17% a year. - Elverdinge:
26,175.36 / 204,792.17= 12.78% over 309 days, which is 15.10% a year.
The same money earns twice as much in the Vindelund order. Not because the garment is better. Not because the customer is better. Not because anybody negotiated harder. Only because it comes back in 193 days instead of 309.
Why the remedies are opposite
A margin problem is fixed inside the garment. Re-cost the fabric. Re-engineer the consumption. Cut the SMV, which is the standard minute value, the minutes of sewing time a garment is allowed. Change a trim. Put the price up. All of those change the rate and leave the calendar alone.
A timing problem is fixed inside the dates. Shorter credit. A deposit. A later supplier payment. An earlier bill of lading. All of those change the calendar and leave the rate alone.
Now apply the wrong one and watch it get worse.
Kalabsha's instinct with Elverdinge was to ask for a price increase. That is the standard answer to a thin order, and it worked: USD 7.40, a rise of USD 0.15 a piece. That is USD 6,000.00 on the order and 2.07% on the price. Everyone was pleased.
Now price the alternative nobody put on the table. Cutting Elverdinge's credit from 120 days to 60 would have brought USD 243,020.00 back 60 days earlier. At 12.0% a year that is worth USD 4,793.82. That is the same as a rise of USD 0.12 a piece, or 1.65% on the price. So the two asks were worth roughly the same, and the factory happened to choose the slightly better one by luck, not by arithmetic. It had no way to compare them, because one of the two was never converted into money.
That is the shape to watch for. A price concession and a terms concession come out of the same conversation and the same goodwill, and only one of them is normally priced. Until you can convert days into cents, you cannot know which one to spend your leverage on. Course 16.4 owns how that negotiation is run from the buyer's side. This course owns the exchange rate between days and cents.
Check yourselfAn order shows a 19% margin on the cost sheet, an 11% margin after finance, and a return on cash of 41% a year. Margin problem or timing problem?Show the answer
Neither. That order is fine. A 41% annual return on the cash it consumes is strong. The finance cost is high in dollars only because the order is big and slow, and the return already accounts for that. The mistake to avoid here is treating a large funding cost as evidence of a problem. The funding cost is a symptom of size and duration. The return on cash is the number that says whether the duration was worth it.
What to take away
- Work out the margin after finance on every order before you rank two of them. The ranking changes more often than anyone expects.
- Return on cash a year is margin after finance, divided by average cash tied up, turned into a yearly figure by the cycle. It is the only figure that compares two orders of different sizes and different lengths fairly.
- A low FOB does not mean a small finance cost. The calendar is the same length, so the funding is a bigger share of a smaller price.
- A margin problem is cured by changing the garment or the price. A timing problem is cured by changing dates. Curing the second with the first usually makes it worse, because price and terms are spent from the same account.