Negotiating payment terms is a frustrating and grueling experience for most designers out there. However, since the process is crucial to establishing a stable cash flow and ensuring your label’s longevity, knowing the rules of the game will definitely save you time and effort during the next selling season. So let’s explore your options.
Make Them Pay
Upfront payment in full
A perfect zero-risk arrangement for any brand, and a virtually unachievable goal, especially if your line is new to the market.
Though highly desirable to designers, they have become increasingly rare since the recession hit. You should also know that the practice of giving deposits varies from market to market. For example, buyers in the US are much more reluctant to pay deposits on their orders than their European and Asian counterparts. Competition among designers is so tough in the US, that many labels offer very flexible payment terms to solicit orders. So it’s easy for buyers to pass on a line which demands deposits.
Nevertheless, you shouldn’t be afraid to ask retailers for a deposit, especially if they are requesting a custom order that you won’t be able to move should things not work out. Keep in mind that if you do manage to get a deposit, the buyer will be much less likely to walk away from the order, as they’ve already invested money in you. The other side of securing a deposit is that you might need to re-imburse the buyer in full should anything go wrong with the production or delivery.
Under these terms you commit to manufacturing an order, but only ship it to the retailer once the full payment hits your account. Though you do risk being left with inventory and having to pay for production out of your own pocket if the buyer walks away from the deal, going with pro forma is still safer than most other options.
COD (Cash on Delivery or Collect on Delivery)
This arrangement allows the buyer to pay for the order right after it has been delivered. Ideally, if they don’t, the shipping company returns the goods back to you. And though that works for many online stores and food delivery services where the courier collects the money on behalf of the seller right away, things don’t always go as smoothly in the business of fashion.
When it comes to selling designer apparel and accessories under COD, the retailer can delay receipt of the goods for a few days (in some cases they may even refuse the delivery). Other things that can go wrong with this payment mode is that the check issued by the retailer can be recalled and/or bounce when you attempt to deposit it. Hence, you do risk being paid late or, in the worst case scenario, not succeeding in collecting money for the order received at all.
Under these terms, the buyer is billed for their purchase 30 days after the product delivery. Net-60, 90 and even 120 are used to signify longer billing periods. Since the risks associated with net-30 are higher than the previously described methods, seasoned business insiders only recommend offering such terms to trusted retailing partners. That way you’ll demonstrate your goodwill and strengthen your relationship. It is also customary to give stores a discount for getting the payment in early.
Don’t “Ship & Hope”
Even if your company is new to a certain market, or if you crave to land a deal with a certain hip store, it doesn’t mean that you should abandon all caution in determining which stores you should do business with. Here are a few helpful tips:
#1 – Discuss every detail to set clear payment and delivery terms and eliminate misunderstanding and communication breakdowns.
#2 – If the retailer insists on rigid payment terms that don’t benefit you, demand guarantees or references. Also, try to avoid markdown allowances and “sale or return” deals.
#3 – Check the store’s reputation and credit history to make sure you only sell to qualified accounts and not just “ship and hope”. Hiring a professional agent to advocate for your business might be a good idea as well. As Miracle Wanzo of Fashion Incubator explains it:
“Since most DEs are not good at collecting (you design, remember) and many are not incredibly confident when dealing with retailers, you don’t make the best collection agents (generally) and often don’t have enough time to do it. […] This is where experienced industry sales reps have an advantage, as your sales rep will definitely know which of their store accounts pay and which do not (as they don’t get paid until you do). […] they can steer a DE into the right stores and help them avoid bad stores with a good image and deal with stores that have “payment issues”.”
As you can see, making retailers put their money where their mouth is can be a challenge. However, if you select a sales agent who will take care of negotiating and ensuring the best terms for your collection, if you are careful about confirming orders only from “pre-qualified” retailers, and insist on open and honest communication, you should do quite well.