Pay-Less Notice
When a manufacturing concern is experiencing significant oversupply problems, it might be time to consider a Pay-Less Notice of Removal (PPL). PPL is an agreement in which a facility operator agrees not to impose pick or order fees on customers that are unable to pay for their goods during the contract term. Under the PPL agreement, the facility operator then agrees not to send any further orders to the consumer and accept cash settlements for previously paid goods. PPL contracts are most useful when a facility is experiencing oversupply problems, in which case it will help the facility avoid additional costs that would result from contracting with a wholesaler that limits contract terms to a specified level of goods available.
In addition to helping reduce oversupply, a PPL agreement could be important to a manufacturer that is undergoing rapid growth and expansion and expects to generate excess revenue as a result of increased turnover. By agreeing not to fill orders for a given period of time, a facility operator can assure that the appropriate amounts of inventory are in-stock when the company begins operation in a new location. In addition, the PPL arrangement can help manufacturers ensure that seasonal merchandise is available when they need it. For example, if the manufacturer plans to expand its current production capacity by 150 percent in the next two years, it will need significantly more warehouse space than it currently has.
To determine whether a PPL is appropriate for a particular operation, a company will need to determine how much inventory to purchase at its current location, how many new locations it can accommodate, and what kind of operating cost it will incur. The PPL is most effective when purchased in small lots, as each lot will provide a substantially smaller return on investment than does a larger production lot. It will also be easier for warehouse owners to maintain inventories of product on a PPL than it would be under normal production conditions. Pay-ables can provide a manufacturer with a means of ensuring that seasonal merchandise is available when a customer wants it. Moreover, adding this kind of insurance to a distribution chain makes good business sense for all parties involved.
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