Excited about getting in front of your first retail accounts?
You’re probably really excited about an upcoming or promising negotiation with a large department store like Nordstrom, Macy’s, Bloomingdale’s, Matches, Net-a-Porter, etc.
There are a few times where you need to think about whether or not a contract is really in the best interest of your business and possibly, you may need to back out if you cannot negotiate good terms.
The three times that you’re going to want to think about backing out of these contracts:
- Unfavorable payment terms for you
- If this retailer is going to be factorable
- Excessive chargebacks and penalties
Let me help you understand exactly how and when a wholesale agreement may not be the best choice for you. Before you just walk away from these contracts completely, you will want to make sure that you are negotiating.
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. It never hurts to see how flexible a retailer can be. The first thing to consider is payment terms.
Unfavorable Payment Terms
If the retailer wants you to be selling to them and they want to pay you, let’s say net 60, but you need to get paid net 30 because you can’t afford it otherwise, then it’s really important that you 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 take on internally to be able to produce those products and go that extra 30 days without being paid. But remember, if you’re not getting paid, you’re not going to be able to afford to have normal operating expenses. You’re not going to be able to afford to have your normal facilities and be able to run things properly. Being able to align and work with your accountant in terms of when you need payments to come in, what are the payment terms you can work with, and also when negotiating with different retailers, it’s going to be a way forward for you.
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.
Is This Retailer Going to Be Factorable?
You’ve got to ask yourself, is this a large enough wholesale purchase order where we need to start thinking about factors? Now, the great thing about a factor is they basically buy your receipts. So let’s say for example, Nordstrom says they want to spend $100,000 on an order with you, and you’re excited. You want to be able to do that order. At the time you actually ship out the order and you send the invoice to Nordstrom, you can then opt to sell that invoice to a factor. 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. Now, why is that important to you? First of all, it gets you paid on time. It gets you paid earlier than 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.
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 of 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.
Lots of big retailers go in and out of being creditworthy. 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. 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. 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 at better interest rates. It’s very similar when you think about retail. The credit scores of these retailers change and fluctuate and you want to make sure if you are going to go into huge accounts and any huge 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.
Excessive Chargebacks and Penalties
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 and have a really strong understanding. Is this going to be a retailer that charges you every time you 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 the different areas of chargebacks are 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, 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.
Check out our blog post on pivotal next steps after securing your first wholesale order. We’re going to go a little bit more in-depth into actual examples of particular compliance manuals, and they’re very 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.