We have heard a number of stories over the last few months about the core / commodity buyers taking months to pay for the product they are purchasing. The core market has certainly changed over the last 5 years. The core segment of our business has been a true growth opportunity for the last several years and the future looks to be just as good. A solid plan is required when looking at how best to maximize what you are doing.
What part types are you going to harvest and when are you going to harvest them is the first thing that needs decided. The most cost effective and efficient place to harvest is in dismantling. There is an opportunity to significantly reduce your cost to process a vehicle by having a quantity of parts sold to the core / commodity buyer at the time of dismantle. The faster you can fill boxes the faster you can submit them for payment. There are some products that you have local buyers for and some that the national buyers pay more money for. This is the first place you need to decide what the time value of the money is to you. The local buyer tends to pay by the average per piece but also pays on the spot. The national buyers who pay more money do so because they are targeting specific part numbers. In order to do that they must verify that what they are buying is truly what they are needing. Interchange is great but can lead people off path on core values at times. It can go from they all work in our language to a core value reduction of 75% in many cases because it is an A interchange instead of the B they really needed.
You also need to factor in how many potential buyers you will have. Competition for your items is good but when it does not exist you need to factor that into your willingness to wait for payment. The amount that is needed has an impact on what you should do also. Freight is going to be needed at some point in time to get the product to the buyer. The larger the load the more items to average the freight cost on so large loads is what the buyer really wants. Spending months amassing a load to get a small amount of increase of dollars from a local buyer needs to be weighed also.
Most of us end up spending what we have available to us for salvage. Most of us can process more vehicles than we currently do. Most people say that their financial resources is what prevents them from buying more vehicles. The core money is a source for car buying money. If I run at a 90 day breakeven rate on vehicles. The number of vehicles we have locked in our accounts receivable is a scary high number. Waiting on core buyers to pay you is part of your accounts receivable. These are things that you need to factor in to your decision on who is going to get to purchase your core commodity product. It has value and is in high demand. The complex electrical items will only grow on the vehicles we process and the overall demand will continue to grow along with it.
The tracking of outstanding cores to the core buyer in your accounting is a must also. How do you know who owes you if you do not keep some record of it? There are several schools of thought on this. The first is to estimate what you expect the load to bring. This can be done by box or as a total. Once you have the number you have choices on what to do. You can invoice them at that amount, a greater amount or a lesser amount. You know that an invoice or credit is going to be required at some point to true the account balance and the check. If you inflate the amount and generate a statement, you can send the buyer a reminder that they owe you. I would inflate the amount so they don’t think they are going to get a super deal which could happen if I invoice at a deflated amount based off of what shrinkage and damage will occur. Regardless of the amount that is invoiced and additional transaction (invoice or credit) is going to be needed.
This will become more commonplace as our yard management systems better incorporate the core commodity sales into to vehicle profit record. Getting better at cores is something we all need to do but keep in mind that we do need the money so keep the pressure on your buyers to pay you in a timely fashion.
Mike Kunkel Bill Stevens
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