Moldmakers and the battle for payment

It was the primary reason for the formation of the American Mold Builders Assn. It’s one of the major causes of bankruptcy for mold shops. And it continues to be a huge financial issue even today for many moldmakers. It is the issue of getting paid.

Thirty years ago most customers of mold shops didn’t pay anything—not even a down payment—on a mold or tool until it was delivered and proven. The situation got so bad in the Midwest, where a predominant number of mold shops are located, that several company owners got together to formulate standards for payment. 

These standards included a down payment and progress payments during the course of the build. A final payment, usually a small percentage of the total cost of the mold, was not due until the mold was proven. This helped mold shops pay their employees and purchase raw materials, and improved cash flow for many shops struggling to survive. 

Unfortunately, having standards in place does not guarantee that customers will follow them. Nonpayment or very slow payment for molds continues to be a major issue. And owners still struggle with ways to deal with this problem. 

Moldmakers as Financiers
As OEMs become more demanding of mold shops, they are pushing suppliers to new levels of involvement. Most common is a program in which the moldmakers essentially finance the tools indefinitely for the OEM. The automotive industry in particular is known for dragging its feet when it comes to paying moldmakers. 

In some cases, say moldmakers close to the automotive industry, they’re being told by Tier One molded parts suppliers, "You’ll get paid when we get paid," or "You’ll get paid 90 days after the production part approval process [PPAP]." 

Karl Van Blankenburg of American Mold Technologies Inc. in Harrison Township, MI explains that often a large program for a Tier One in the automotive industry consists of dozens of parts being supplied by a variety of vendors including several moldmakers. If the terms of the agreement state that payment will be made after PPAP, that means that all of the parts that make up a specific assembly must be approved. 

"If something is wrong with another component, you don’t get paid, even if it’s not your mold causing the problem," says Blankenburg. "If you have to wait until they get PPAP on an entire instrument panel, for example, that could take a very long time. Small shops don’t have the cash flow to fund a tool like that." 

Amortization
With more molders offering amortization programs to assist customers with the upfront costs of molds, where does that leave the moldmaker? In some cases, the molder is also the moldmaker, but in others, the moldmaker is operating as a separate entity. 

John Weeks, president and ceo of Precise Technology Inc. in North Versailles, PA, reported at IMM’s Management Conference in January that from 1991 through 1998, his company amortized $980,000 in tooling for customers. That increased to $3.8 million in 1999. 

"You’re a million dollar molder with a billion dollar OEM and a billion dollar material supplier, and they want to use your money," Weeks remarked wryly. Still, someone has to pay the moldmaker. If the molder has agreed to an amortization program, then the molder should be the one to shoulder the burden of financing the mold, not the toolbuilder, say most moldmakers. 

Getting Your Terms
Some OEMs, particularly those in the automotive industry, are implementing terms and conditions that many moldmakers find intolerable. Recently, Johnson Controls Inc.’s Automotive Systems Group, a Tier One supplier in Midland, MI, sent a letter with a multipage contract to its mold suppliers. 

The letter announced a new program, Partnerships to Achieve Cost Targets (PACT). The three-year contract provides for quarterly payments of 4 percent on all paid invoices during that quarter to JCI. JCI guarantees moldmakers more work only if they are competitive, but the reward for getting a higher percentage of work is increased payments to JCI—up to 6 percent on all paid invoices. 

Too many moldmakers think they can’t negotiate with their customers, believing that a customer’s terms must be accepted or the business will be lost. However, say many moldmakers, that’s simply not true. 

After doing the math, one moldmaker agreed to similar terms after determining that he could come out ahead. He found that the interest he was paying on the debt used to finance a mold was greater than the percentage he would give back to a customer that paid in a timely manner. Giving a rebate to the customer proved to be the lesser of two evils. 

"Terms have become a negotiating tool now, just like pricing," says Ed Bernard, president of Bernard Mould, a 50-employee shop in Oldcastle, ON. Bernard has accepted payment terms from the automotive industry of net one year. "It has sort of become like a street fight where the only rule is that there are no rules," he adds. "All the old rules and standards have been thrown out the window." 

Roger Klouda, president of MSI Mold Builders (Cedar Rapids, IA), successfully negotiated new terms with one of his largest OEM customers, and the molder backed him up. The OEM squealed about it, notes Klouda, but paid in accordance with the new terms, which were more favorable for Klouda’s business. 

"If you’ve got good quality, good delivery, and a good price, you can change your terms," Klouda notes.