Securing Property Rights for Production Tooling Assets in Contract Manufacturing
Securing tooling title demands explicit contractual bailment provisions, physical asset tagging prior to T1 trials, and unburdened lien waivers.
Tooling Amortization Schedule
Meaning
Financial schedules that allocate the capital cost of a new injection mold across the volume of plastic parts produced provide a mechanism to recover initial tooling investments. Establishing a tooling amortization schedule allows the buyer to pay for the mold gradually via a surcharge added to the piece price of each molded part. This method avoids large upfront capital outlays for startups or new product lines.
Cost Recovery
Amortizing the tool cost requires agreement on the targeted production volume. Under a tooling amortization schedule, the cost is divided by the expected run. This ensures the mold is paid for on time.
Contractual Transition
Once the amortization period ends, the piece price of the molded parts must be adjusted downward. The tooling amortization schedule defines the exact moment when the surcharge is removed and full tool ownership is transferred to the buyer. This transition requires careful monitoring of the production counts.
Financial Exposure
Risk occurs if the product is discontinued before the mold is fully paid off. A tooling amortization schedule outlines the buyout penalty that the buyer must pay if production volumes fall short of the original projection. This clause protects the molder from unrecovered tooling investments.