Do you give terms?

This is a sentence you’ve heard or will hear if you are in the wholesale business. But, what does it actually mean? The phrase gets casually thrown around as if everyone has a clear understanding of what it means.

First, let’s chat about  Net 30 (Trade Credit) in general terms. It means you take an order and get paid in full in a set amount of (30) days.

If you run your Small Biz on an all “cash-basis” extending credit can be daunting. You certainly don’t have to do it either. It’s common practice to run a credit card when the order is shipped. You get instant satisfaction and semi-instant payment from your CC (Credit Card) processor.

Why should you ever extend credit? Well, there are larger retailers that “only” do business on Net 30 terms. Providing trade credit to the select clients can be a way to position your company  for growth. If you want to grow, it can be tough to stay on a “cash-basis.” Not impossible, just tougher.

The downside is, if you don’t manage the process of Net Terms you could end up in a cash bind, late payment, chasing payments and employing bill collectors. Eventually, even writing off non-payments as bad debt. Not fun.

As you can see, there’s a fine between trying to grow your business and the risk of extending credit to retailers.

When you’re still relatively small, a $200 or $500 order may seem like a large order. When a retailer asks if they can have Net 30, you may want to extend credit to get the order.

Just because they ask for Terms does not mean they are a large retailer or even have good credit. Even if they say they only do business on Net 30. That doesn’t mean YOU have to and you still may get the order.

Just to let you know, an order of $200 or $500 is not a larger order for any established boutique or small retailer. They’ll have many lines with required minimum buys that involves rules for reorders and fixtures. These larger branded companies generally give terms because the $ is high.

When retailers ask for Net 30 on their order with you, they’re simply trying to extend their date of payment in order allow them time to sell your goods to pay the bill.

Nothing wrong with that- for them.

For you, it’s all good until they are late with payment and you expend time and energy for a lousy $200.

If they can’t afford to pay $200-500 by credit card for the order, then they really can’t afford to be doing business with you. Now, they may have lots of $500 orders with various retailers and you may have to run the CC# a few times or call for a new number….but it usually goes through.

With that said, there are times smaller orders are placed and retailers would like to establish credit with you on follow-up orders. This is more of a bookkeeping issue for them. Accountants Payable likes to have planned orders, invoicing, etc., so they can plan and track the payments and paper trail more efficiently. This is not your concern, you can still say no. You can make the decision on a case per case basis.

When a retailers asks if you extend terms, the ones that are prepared hand you a list of credit references including banks and wholesalers they do business with.

You then call these references to get an idea of their history. Of course, they will only offer the references that they know will give good feedback.

The banks can only tell you if they have an account or not. The other wholesalers can give your more information pertaining to payment history, duration of business relationship, etc.

You can, of course, have your own Credit Application. However, if a company is used to doing business on terms they usually have a sheet prepared. So, I wouldn’t worry too much about having your own.

There are services that, for a fee, will provide a commercial credit report on a company. Examples would be Dunn & Bradstreet (D&B), Experian or Credit.net.

All of this checking and references does not guarantee payment, but it does give you a better idea of who you are dealing with.

The funny thing about Terms is that there is a balance of what you can afford to extend credit on and what you cannot. You would think the larger the order, the more likely it would be that they expect and you would extend credit. That’s not the case.

You may receive an order for $1000 or $10,000 or more. This may be from an overseas distributor, large hotel or chain retailer. When you’re small or even medium size, purchasing the materials to manufacture the products for the order may be difficult without prepayment or some other agreement. But that’s another topic. Let’s just consider your average size order.

So, you’ve decided to extend terms…what does that actually mean?

The fact is, it means different things to different people. Of course, it’s usually understood according to the bias of what side of the fence you’re on.

Check out the variations below. I’m sure you’ll be able to see which ones the wholesaler and which ones the retailer would like to believe.

• Your business RECEIVES CHECK (in hand) a few days after the 30 calendar days from the client RECEIVED the shipment. Meaning the client/retailer mailed the check on or right before the 30th day after receipt.
• RECEIVE CHECK (in hand) by the 30th calendar day of when goods were RECEIVED by retailer. This includes transit time in mail.
• Still others define it as RECEIVING (in hand) the CHECK within 30 days of SHIPPING the goods (including the transit time in the 30 day term)
• And then it can be defined as RECEIVING the check and cashing it (RECEIVING PAYMENT) within 30 days of shipping.
• Lastly, you may get called with a CREDIT CARD # for payment to be charged against by the 30th calendar day. This is the worst because you have waited to get paid AND you have to pay the CC merchant and processing fee. BUT- You have been paid.

So, I’m sure you had to read the list a few times to get it straight. The one thing that is agreed upon is that the 30 days DOES include weekends and holidays. 30 days means 30 calendar days.

The point of having terms is giving the retailer a reason to pay it on time. If there’s nothing being held over their head why should they pay it on “time?” You need an Either/Or statement.

• Either the retailer pays it by X date OR  they start incurring finance charges of X% per day.
• Your company must receive the payment within X days or you will charge the CC# the retailer must provide at time of ordering on the X day after payment due.
• If there is a late payment, Net Terms will not be extended for next X orders.
• Net Term payment will be made by check, not CC as matter of regular business. If you let the retailer have terms AND they always intend to pay by CC# – that is not acceptable. You loose time and money. In this case, you loose money 2x’s. Time lost and CC fees. If they want to pay by CC# then they should do it up front.

Simply saying Net 30 doesn’t mean anything. YOU have to DEFINE the TERMS.  The same with Net 15, 45, 60, 90.

Have your terms clearly stated on the order, invoice and the policy section in the wholesale area of your website.

Once they sign the order, they have agreed to the terms.

If you take the order by phone, be sure to email them a copy of the order with the Terms clearly stated. You may even have them fax a signed copy back to you.

Don’t feel like you are being a pain. No matter your size, YOU have to watch your back. No one is going t watch it for you, they’re too busy watching their own.

It is easier to have established Terms in the beginning than trying to enforce new ones after the fact.

Where do you want to sell? Are you planning on selling Wholesale or Retail?

This is where small businesses get screwed up. Most Small Biz owners who sell on Etsy or their own domain think you take the cost of the product, double it and that’s what it sells for. They even may call that their “Retail” price.

They may even go to other retail sites of “competitors” and think they’re “over- priced.”

They may well be, but, let’s look at the larger picture of Retail Reality. If you want to grow your Biz beyond Etsy and your own Domain.com, then  you’ll have to think about that from the start.

Let’s say your product cost you $2.36, plus your general overhead of 15% (.354) =$2.72 cost. So, you sell it on your site for around $5.50.

Wow- you’ve made 100% mark up. In retail math- that’s really a 50% mark up (because your cost makes up 50% of the “retail price”).

Okay, you want to sell wholesale to retailers. Great, you sell it to them for $5.50. Still making your “fabulous mark-up.” All is right with the world..no?

No. The retailer has to make money too. They sell it for $11.50 or even $14.00 or more depending on what the market will bear and the type of shop they are.

$11.50! $14.00! What’s up with that?! Now your product is priced the same as those so-called “over-priced” competitors have on their sites

It’s called retail mark-up. Doubling the cost is called Keystone. Keystone-plus is anything beyond that. And, guess what? They don’t want to see you underselling them by 50% or more online.

The most common thing to do is to Keystone your prices on your website from your sell cost, which will now be $11.50. Now do you see why your “competitors” have such “high” prices.
They aren’t trying to rip anyone off or to make a killing on the internet. More likely, their website serves as a marketing tool and they do most of their business wholesale.

These days buyers and even retailers  expect you to have an online storefront. They’ll expect to have competition, but they’ll not tolerate your underselling them unfairly.

If you ever intend to sell your product to retailers, you’ll have to take this into consideration when pricing your product online. You’re allowed to have sales and special offers, however, this is actually best done through special discount codes given out in Newsletters.

By now, I’m sure you are realizing why you need to think about where you want to sell. If you start off selling twice your cost and have a great online business you can expect more than grumbles when you have to adjust your pricing when you start to sell  wholesale.

I know, you’re asking yourself about the keystone-plus retailers. Don’t worry about them. It’s common practice to have a MSRP (manufacturers suggested retail price) on your order sheets. If retailers want to mark-up the prices more than you recommend, that’s their decision. By listing the MSRP on the order form, they’re getting clear notification of retail prices they may be seeing at other retailers.

If you want to mark your online prices up a bit more to allow for some higher retail mark-ups, it’s your Biz, do what you think is best.

Here’s the major PLUS to selling wholesale. VOLUME. You’ll have a minimum order of around $150 or more ( whatever you decide- $150 is probably the lowest.) You’ll have product minimums too! 6 or 12 bottles or jars of each scent etc.

Of course, there are pros and cons to both sides of being a wholesaler or selling your own products retail. It’s up to you to decide your business model. Either way, you’re probably in business to turn a profit and the best way to do that is with the knowledge of how pricing works.

And, oh, if you happen to get a sales rep, they’ll expect about 15% of the wholesale price and sometimes a base fee per month for the showroom shelf space. This really impacts your bottom line, so you’ll need to be sure your pricing is correct and allows for all these factors.

Did this article help you? Do you have any questions about product pricing?