Go Pro: 5 Payment Terms You Need to Know

Before your next sales conversation, or planning your cash flow for the next few months you need to know the rules for your lifeline. Your lifeline is sales, and the rules are how you are going to get paid. Without understanding these terms you will look like an amateur, might miss the sale or worse yet, not be able to pay your bills on time. So read the below, print it out and keep it somewhere handy.

The NET

NET 30 is a common term and  it means that you will get paid within 30 days after the product has arrived.  This means that the retailer has the option to pay you anytime within the 30 day window. NET 60 is 60 days after the product has arrived and NET 90 is 90 days after.

Pro: If you can do NET 30 it’s the most common way to do business with retailers. NET 30 allows for retailers to make sure your product arrives on time, and they can inspect it to make sure that nothing is damaged.

Cons: You have to be able to produce, ship and be ok with not getting paid for up to 6 months from when the order is placed. (i.e. you get an order February that is scheduled to deliver in August). Avoid payment terms at NET 60 and NET 90, though sometimes your retailers might push out payment. It has been known for big retailers not to pay on time and for business to close doors because of it.

Tip:  You can offer incentives or discounts for earlier payment. You can also offer the other payment options.


 

C.O.D (Collect On Demand or Cash On Demand)

C.O.D. is not very common with big retailers, though working with boutiques you might be able to work C.O.D. into your contracts. This allows the retailer to pay for the product as soon as UPS, FEDEX, DHL or USPS delivers it.

Pro: C.O.D’s allow you ensure you get paid as soon as the goods are delivered. No waiting for 30, 60 or 90 days.

Cons: You still have to wait to get paid until the product arrives, so this does mean you have to be able to manufacture and produce without payment.

Tip: Offer C.O.D. as an option for retailers. While they cannot inspect the product before paying for it, some retailers will prefer this method since it hold both parties accountable for the delivery on time and payment.


 

50/50

This is a common payment term for small boutiques. This payment option started with jewelry brands. Most retailers know that the upfront costs of producing high end jewelry can be costly, so this is where the flexibility comes in. Other types of brands (accessories, clothing)  have been using it for while as well.

Pro: You get paid! Even if its just partial payment, you will have what you need to hopefully get started on production. Its a great way for brands to get the cash flow injection to start producing and for retailers to build in good will. A lot of successful brands have been able to launch sustainably because of doing smart payment structures like this.

Cons: You will need to articulate clearly when the second 50% is due. This could be NET 30 or COD. Don’t let there be any confusion.

Tip: I would suggest 50/50 first when negotiating, its the best compromise of all the payment terms.


 

Credit Card Down or Full Payment Upfront

Putting a credit card down is a great way for a retailer to secure the order, and payment upfront is a rare but great when it happens. When retailers buy oversees its common to have a full payment upfront, but its rare for domestic orders. Credit card down is very common, though its important to make sure that the card is valid.

Pro: Either cash in hand, or a credit card that you can charge once delivery is complete. Both are great options for you.

Cons: Ensure the credit card is valid, and that if you get paid upfront it goes through.

Tip: Boutiques will be happy to put down a credit card, so make sure you agree on when the card will be charged. Don’t get too excited about the full payment upfront options, while you can ask, its rare!


 

Consignment

This is a dangerous word to many brands. Though consignment can be a useful tool to help your brand gain distribution channels. There are a number of ways to structure consignment deals. You can do: 50/50 split or 60/40 in favor of you (the brand). The split is done on the retail price.

Pro: Consignment allows you to get into more stores and with the split on sales, you can end up getting paid more than with traditional wholesale prices.

Cons: You never know when you are going to get paid and keeping up with stores on what they sold can be difficult. You should be prepared to have a list of stores and reminders to follow up with them on your calendar. Don’t expect for the retailers to get in touch with you.

Tip: Don’t give consignment a bad name by letting it ruin your business. You should use it intelligently to help your brand increase distribution.

 

With so many payment terms its important to pick the ones best for you. Make sure that you know your cash flow model and can plan accordingly. Getting paid is the lifeline of your business and how you get paid and when are equally important. For help with your business model, sales strategy and creating a sustainable business model send me an email: syama@scalingretail.com.