Before we say anything about offering 30 days’ credit to stores, let’s talk about what you need to happen. There actually isn’t anything more important than that.
How do you want and need to get paid for your products?
When a retailer makes an order, do you need them to pay a proportion of the cost straight away? Or can you afford to complete the products and ask for payment on dispatch?
– Your overheads, direct costs, hourly rate and profit figure.
– How these numbers might change from month to month.
– Your lead time, or how long it takes to make your products.
– Additional expenses or pressures you might encounter.
When you’ve got this picture in your head, use it to figure out how you want to get paid. What’s the best possible way this could work for you?
Some possibilities are:
– 50% up front and the rest on dispatch.
– Pay in full before dispatch.
– Carefully vetted retailers have 30 days to pay from delivery.
There’s no right or wrong answer.
By choosing the arramgement that works best for you (while retaining the option to change your mind,) you’re making it as easy as possible for money to flow into your business.
Now let’s talk about some specific payment arrangements.
Pro forma payment on dispatch
The most common payment arrangement for new suppliers is pro forma payment on dispatch. This means you get paid in full before you send out the order, and it’s therefore the safest payment method for suppliers.
In any fledgling relationship, it takes time to establish trust. The retailer likes your stuff but doesn’t know for certain that their customers will buy it. As the supplier, you’re pleased that the retailer is interested but perhaps not so pleased that you’re willing to extend them credit right away.
Payment on dispatch is clean and simple. They order, you make the stuff, you invoice them, they pay, you dispatch, they sell it and come back for more. Easy.
30 days’ credit
If things go well, you may decide to offer your stockists 30 days’ credit, meaning you send the goods now but they pay you in 30 days’ time. This is obviously the most attractive option for retailers, but…
Credit is a privilege, not a right.
Offering credit has all the same drawbacks as sale or return, in that you’re essentially giving stores an unsecured loan.
If that doesn’t work for your cash flow, and that’s usually the case for makers starting out in wholesale, pro forma payment is completely standard and accepted.
Even major, multinational suppliers don’t offer credit straight away.
It’s less common for suppliers to use this third arrangement, which is when you require a proportion of the payment – say, 40% or 50% – at the time of order and the rest on dispatch.
Some suppliers do work this way, however, and is usually an indicator that they’re new, make expensive things, have a long lead time or all three. Let’s take a closer look.
From the retailer’s point of view it’s a bit fiddly.
We generally want to pay for things all in one go, receive them a day or two later and get them on our shelves. So if you want to do deposit payment, your lead time becomes really important.
Cash flow is everything in retail so having money tied up for a long time without any return feels like a bad move.
This is especially the case with first orders.
If I’ve ordered from you before and I know for a fact that I’m going to sell your lovely thing as soon as I get it on the shelf, paying you a proportion and having to wait a while doesn’t hurt so much. When your work is untested in my store, however, having to pay up front and wait for a long time isn’t particularly enticing.
So if deposit payment is what you need to happen, the question is how short can you make your lead time?
You want me to to pay 50% now but my stuff will be ready to dispatch (and you’ll ask for the other 50%) within 10 days? Not a problem.
Three weeks is still kind of okay. A month is starting to feel like quite a long time. Six weeks is a really long time.
Not every potential stockist will feel the same, of course, but these are the general expectations.
When you’re starting out, your job is to make the barrier to ordering as low as possible, for as many of your target stores as possible. Requiring part-payment up front definitely raises the barrier, but there are ways to balance that out – like not having a minimum order, for example.
So if it’s what you need to happen, ask for it.
It’s also worth mentioning that there’s a hidden benefit to this payment arrangement – it makes it less likely that you’ll have to chase retailers who’ve placed orders with you. This a common problem after trade shows. I’ve heard from artists who’ve taken a stack of orders during a show but a month later none of them have actually settled their invoice.
Retailers dragging their feet with payments is a fact of life, unfortunately, and it’s something you’ll certainly encounter. If they’ve already paid you a couple of hundred quid, however, you might find them significantly more motivated to pay the rest.
So if you spin it the right way and are a joy to work with in every other respect, causing a buyer more hassle in the beginning could actually mean less hassle for you in the end.
PS – If you could do with some scripts for chasing invoices, I wrote templates for you.
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