China order profit and cash flow planning
Use linked stock, contribution and cash schedules with shared assumptions. Calculate contribution from units sold, excluding recoverable VAT. Put stock payments and actual VAT movements on their expected cash dates, then find the lowest running balance. Discuss your order assumptions with Cambridge China Bridge.
Build linked schedules from shared inputs
Create a shared input sheet for each product and order: purchase quantity, sellable quantity, landed unit cost, selling price, variable selling costs, sales forecast, payment milestones and customer collection dates. Mark assumptions separately from confirmed quotes and invoices. Feed these inputs into stock, contribution and cash schedules.
Use Understanding your landed price to establish the cost input and How to plan cash flow for a China order for payment timing. This model adds the connection between stock purchased, units sold and money collected. It is a management planning model; agree its treatment with your accountant before using it for statutory accounts.
Calculate contribution only on sales
For each planning period, calculate sales revenue from units sold and the selling price, excluding VAT where applicable. Subtract the landed cost attributable to those units and their variable selling costs, such as marketplace fees, fulfilment and delivery. Allow for refunds and returns consistently. The result is contribution available to cover fixed costs.
Do not subtract the whole stock purchase from contribution when you pay the supplier. Carry the cost of unsold units in the stock schedule. Track opening stock, receipts, sales, sellable returns, losses and closing stock. Show stock losses separately, and avoid counting a defect allowance again if the landed unit cost already includes it.
| Item | Contribution schedule | Cash schedule |
|---|---|---|
| Stock purchase | Charge landed cost attributable to units sold | Record deposit, balance and other payments when paid |
| Recoverable VAT paid | Exclude from contribution | Record payment and its later settlement effect |
| Customer sale | Record revenue and related variable costs | Record collection when money is expected |
| Unsold stock | No sales contribution | Purchase cash remains committed |
Keep a separate VAT bridge
Separate recoverable VAT from cost-bearing VAT. As explained in VAT on imports from China, recoverable import VAT belongs outside landed unit cost. If it is paid upfront, show the cash outflow and the expected recovery effect separately. Recovery may reduce a VAT payment rather than produce a separate bank receipt; do not count both.
Postponed VAT accounting requires UK VAT registration. HMRC explains that it allows import VAT to be declared and recovered on the same VAT Return, subject to normal input-tax recovery rules. If applicable to your shipment, show it in the VAT bridge rather than inventing an upfront payment and later refund. Have your accountant confirm eligibility, recoverability and the expected net settlement.
Find the funding gap from dated cash movements
Record supplier deposits and balances, freight, handling, duty, delivery, selling costs and overhead payments on their expected payment dates. Record customer receipts when you expect to collect them, including advance payments separately from sales. Use Working capital for China orders alongside this schedule.
Roll the cash balance forward from available opening cash, adding receipts and subtracting payments. The lowest balance shows the funding gap before new financing. Keep borrowing and owner funding separate so they do not hide it. Show interest separately from contribution and include its payment in cash. A positive contribution can coexist with a cash shortfall while stock remains unsold or customers have not paid.
Test and reconcile before committing
Test slower sales, later customer collections, earlier supplier payments, delayed VAT recovery and a reorder before the previous batch has sold. Change shared inputs so every schedule updates together. Compare contribution, unsold stock and the lowest cash balance for each scenario; an attractive unit margin alone does not establish affordability.
Check that closing stock follows physical movements, sales costs follow units sold, and deposits plus balances reconcile to the agreed purchase payment. Keep cash spending on tooling and samples distinct from any allocation already included in unit cost. Replace forecasts with actual invoices, stock movements and bank receipts, recording the reason for each difference.
Frequently asked questions
Does buying stock reduce contribution immediately?
In this planning model, stock payments affect cash when paid. Contribution includes the landed cost attributable to units sold. Keep unsold stock and stock losses visible separately.
Should recoverable VAT be in my product margin?
Exclude recoverable VAT from contribution. Track any actual payment and later VAT settlement effect in the cash schedule. Include VAT that cannot be recovered in the relevant cost.
Why can a profitable China order run out of cash?
Supplier and shipping payments may precede sales and customer collections. Unsold stock ties up cash, and recoverable VAT paid upfront can add a temporary funding need.
How do I avoid counting stock costs twice?
Use separate linked schedules: purchase payments in cash, cost attributable to units sold in contribution, and unsold units in stock. Do not deduct the purchase payment again from contribution.