Stock That Freezes Your Capital: When 6 Months of Sales in the Contract Becomes 8

A number that surprises you only once you add it up

Besides minimum sales quotas, many contracts also carry an obligation to hold minimum stock, in an amount that usually surprises you only when you sit down and add up how much capital is permanently “locked” in the warehouse.

Stock sized for someone else's market

A requirement unrelated to real demand: An obligation to hold stock for 3 to 6 months ahead is sometimes copied from a larger-market model, without adjusting to the local sales dynamics.

Storage and insurance costs that nobody plans for: Besides the value of the goods themselves, there is storage space, insurance and possible spoilage or obsolescence. This is easy to overlook in the initial financial assessment of an offer.

Whose stock it is: Check whether the stock you must hold remains your property and your risk (damage, theft, obsolescence) or whether the supplier holds it on consignment. That decides who bears the cost if the goods do not sell.

What it looks like in numbers (an imagined example)

Imagine that the required stock is 6 months of sales, calculated on a projection of €40,000 a month (purchase value): €240,000. If actual sales are €30,000 a month, that stock is in fact 8 months of sales, not 6.

If financing the stock costs you 8% a year and storage and insurance 3% (assumptions), the annual cost is 11% of the stock value: €26,400.

Had the obligation been 3 months of average actual sales, the stock would be €90,000 and the cost €9,900 a year. The difference is €16,500 a year, and that is before counting goods that become obsolete or do not sell.

For your own case, take the figures from the offer and the real costs of your company.

Questions to Check Before Signing

These are not ready-made contract clauses or legal advice, but questions worth thinking about before you accept the terms. The exact wording depends on your contract and the applicable rules.

How many months of sales does the required stock represent, based on your actual rather than projected sales?

Is the obligation a fixed amount or a percentage of average sales?

Who owns the stock and who bears the risk of damage, theft and obsolescence?

What is the shelf life of the goods and what happens if it expires before they sell?

Can excess stock be returned and on what terms?

How much do storage, insurance and financing of the stock cost you each year?

If the contract requires minimum stock, describe your sales and storage costs to us. The report will show what the obligation really costs you and what your options are.

Prepare questions before making a binding decision

Expert Consilium helps you examine business assumptions, risks and options before you make a decision. A business analysis of the terms shows what they mean for price, risk and flexibility.

Contact us: office@expertconsilium.com | expertconsilium.com

Informational business article. It does not constitute legal, tax, accounting, investment or other regulated advice.