Three times to reconsider a wholesale agreement. Hey guys, it’s Syama here, and I know you’re so excited about getting in front of your first retail accounts. In fact, you’re probably really excited about maybe an upcoming or promising negotiation with a large department store like Nordstrom’s, Macy’s, Bloomingdale’s, Matches, Net-a-Porter, lots of big accounts out there, really hungry and waiting for your business to find them. However, there are a few times where you will need to think about whether or not a wholesale purchase order and contract is really in the best use of your business and, possibly guys, you may need to back out if you cannot come to good negotiating terms. So the three times that you’re going to want to think about backing out of these contracts for the sake of your wholesale fashion business plan. Number one, unfavorable payment terms for you. Number two, excessive chargebacks and penalties. And number three, when you actually start to take a look at if this retailer is going to be factorable.
So let’s dive in a little bit more to understand exactly how and when a wholesale agreement may not be the best choice for you or your wholesale fashion business plan and strategy. Now, before you just walk away from these contracts completely, you will want to make sure that you are negotiating. Now, negotiating means going back and forth and remembering that any type of contract or anything that gets put forward in front of you, is negotiable, right? It never hurts to see how flexible a retailer can be. But the first thing to consider guys is really payment terms. If the retailer wants you to be selling to them and they want to pay you, let’s say net 60, but really guys, you need to get paid net 30 because you can’t afford to do it, then it’s really important that you actually negotiate with them. See if you can cut down those payment terms or figure out if there’s another approach and strategy that you can actually take on internally to be able to produce those products and go that extra 30 days without being paid. But remember, guys, if you’re not getting paid, you’re not going to be able to afford to have normal operating expenses, right? You’re not going to be able to afford to do your normal facilities and be able to run things properly. So being able to align and working with your accountant in terms of when you need payments to come in, what are the payment terms you can work with and ultimately negotiating with different retailers, it’s really going to be a way forward for you on this topic of payment terms. Remember, just as any other area of your business, cash flow is a crucial aspect of your wholesale fashion business plan. Managing cash flow and expenses is essential to the health and longevity of your business.
Now secondly, you’ve got to ask yourself, is this a large enough wholesale purchase order where we need to start thinking about factors? Now, the cool thing about a factor is they basically buy your receipts. So if let’s say for example, Nordstrom is like, hey, I want to spend a $100,000 order with you guys or with me, and you’re like, amazing. I want to be able to go in to do that order. Well at the time that you actually ship out the wholesale purchase order and you send the invoice to Nordstrom, you can then opt to sell that invoice to a factor. Now the factor is going to take a couple of percentage points. They’re going to charge you for this, but in essence, the factor will pay you what’s due on the receipt and they will then go ahead and chase that receipt with the retailer, and in this example, Nordstrom. Now, why is that important to you? Well, first of all, it gets you paid on time. It gets you paid earlier than maybe when you were originally going to get paid and all of a sudden you don’t have to worry about doing all that follow up and all that chasing. So weigh the risks and benefits to determine if factoring is right for your current wholesale fashion business plan. As CEO, it’s also important to stay abreast with the news. Are there currently great risks associated with selling to your prospective wholesale fashion accounts? Do your due diligence and make some important decisions.
Now guys here’s the forewarning. Lots of big retailers go in and out of being creditworthy, right? They go in and out of being factorable. There was a time when Barneys was not factorable, a time when Saks was not factorable and even a time when Nordstrom was not factorable. So just because a retailer isn’t able to be factored during that particular season, it doesn’t mean that their creditworthiness won’t change over time. Similar to your creditworthiness, right? You pay your bills on time, you’re in good standing, all of a sudden your credit score goes up and people are willing to lend you money, right? At better interest rates. Very similar when you think about retail, right? These retailers, their credit scores change and fluctuate and you want to make sure if you are going to go into huge accounts and any huge wholesale purchase order, that you have a factor that’s going to be able to pay those receipts for you so they can go after and chase those dollars.
Now, lastly, guys, when it comes to things that are non-negotiables or things that can really hurt your business, you have to be looking at things like chargebacks and penalties. Read your vendor compliance agreements very thoroughly. Have a really strong understanding. Is this going to be a retailer that charges you every time you, let’s say, miss putting a barcode on something or you don’t ship it floor ready, which means either the product is stuffed if it’s a handbag or an accessory, or if it’s a garment, maybe it’s already on a hanger. It’s very, very important that you understand exactly what are the different areas of chargebacks that you may actually be hit with. And the reason why it’s so important is because at the end of the day, if you get hit with major chargebacks, well your profitability on that wholesale agreement has significantly diminished. You also want to use that as a leveraging point to talk to your distribution center and to make sure that fulfillment can fulfill to these specifications.
All right guys. To dive in deeper than we have today on these topics, make sure you check out our article on the pivotal next steps to take after securing your first wholesale order. We’re going to go a little bit more in-depth into actual examples of particular vendor compliance manuals, and they’re super, super important for you to know. So make sure you check out Two Seasons. And, while you’re reading, make sure you download an example copy of a vendor compliance manual. We have one for you from Intermix. Not super top secret information, but definitely things that a lot of you guys don’t know what to look out for and don’t really know how to prepare once that first wholesale purchase order comes in.
All right, leave comments below. Head on over to Instagram @scalingretail where can stay up to date on all the fun and cool things that we’re up to, what we’re doing. And lastly, guys, when you’re ready to take your wholesale fashion business plan or strategy global, when you’re ready to expand into markets and you want someone to be able to guide you through that process and make sure that it’s the right market fit for you, you’ve got to send us an email at email@example.com. My retail consultants and myself, we can’t wait to work with you. We understand that markets are changing, sales strategy is changing, and guess what? We are the company to help you uncover, discover, and create a sustainable business. I’ll talk to you soon guys. Have a great day. Bye.