GETTING PAID–Make Sure You Do!

We interrupt our normally-scheduled series on cleaning your studio for this public service announcement. (Oh, I’ve always wanted to say that!)

I wrote a long post on a wholesale crafts forum, and realized it’s good advice for anyone wholesaling their art in these hard times. (This advice can apply to retail sales, too.)

Sorry this is so long, but this will hopefully show you why you MUST hold firm on your payment policies, or even tighten them up to protect your business during a recession.

When the economy hit the wall in 2001, late payments in the fine crafts market became the rule rather than the exception. Many of us craftspeople tried to be nice and understanding. These were stores we’d enjoyed great relationships with!

Then came a fiasco with a very large company that retailed craft in dozens of stores across the country. They were a major account for a lot of craftspeople, with stores across the country–placing $20,000-$50,000 orders at wholesale shows. Some craftspeople built and expanded their entire business based on orders from this company.

Soon after the recession hit, they started paying late, and ordering more new stock before they’d paid their outstanding invoices. Many, many craftspeople extended credit, thinking things would get better. Some even made this decision deliberately, hoping to help this company out of its credit crunch.

It was a bet that didn’t pay off. The company declared bankruptcy.

Not only did these craftspeople get stuck with huge unpaid invoices, they didn’t have their stock back. (In a bankruptcy, all assets, even ones that haven’t been paid for, are held and doled out to all the people owed money in specific order. And things like rent, utilities, wages, etc. will be paid before vendors.)

Many, many craftspeople went out of business. The ones who were hit hardest were the ones who continued to ship product even when there were huge outstanding invoices.

Even us smaller producers had similar issues with many of our accounts. I hated playing hardball with people who had been very good to me. But the reality is, if you are not getting paid in a timely manner, despite repeated requests, that is a VERY bad sign. Especially when even formerly-reliable accounts fall into this pattern.

Then there’s the time and emotional energy expended trying to track down these payments. It sucks when people are unwilling to pay you for your work. It’s worse when they have your work in hand and still won’t pay for it. People having financial difficulties get defensive. It’s understandable, but it ends up seeming like it’s about your work. (It isn’t. Remember that.) If you have someone working with you who can make these painful calls, it helps. Seriously, at least you can spread the pain. I felt so emotionally drained after calling these stores over and over, sending letter after letter requesting payment, it took all the joy out of what I was doing.

You may also want to revise your returns and exchanges policy. I had a generous policy, accepting returns as credit against new orders. This can backfire quickly.

If you accept unsold inventory in return, for credit against outstanding invoices or new inventory(which I did) soon you’ll find you aren’t really making any outright sales at all. When stores are short of cash, they look around at their stock on hand that can be returned. If you have a generous return policy, they will take advantage of it. This happened to me, and it nearly put me out of business before I tightened up my policy.

I still got whacked with this during my last retail show. Even though my returns and exchange policy is clearly posted (required by law if you want to enforce it, btw!) and printed on my sales receipt, I decided to accept a very large return the week after the show. My restocking fee barely covered my merchant services fee, and came nowhere near covering my emotional anguish at processing such a large return. You can bet I’m adjusting my restocking fee for large purchases!

If you continue to extend credit to a store, even for 30 days, you’ll run the risk of being out money AND product if the store tanks.

Instead, “temporarily” request payment upon shipping the orders. Tell each person or account it isn’t THEM, but you’ve been burned recently by other vendors, and these are steps you HAVE TO TAKE to keep your company in business. Nobody wants to feel like they’re being punished for being “bad”, and if when things get better, you’ll want a civil relationship to come back to.

Reduce the minimum orders if you have to, or if that works for you. Do EVERYTHING except trust someone else with your hard-earned money or carefully-made product. Be nice, be sympathetic, but firm.

If your product sells well for them, they will do whatever it takes to keep ordering from you. If your product ISN’T selling well for them, then somewhere down the road you are going to get hosed–either they won’t be able or willing to pay you (when they can use what $$ they have to buy product that DOES sell well) or your product is sitting on their shelves and they aren’t going to order more anyway.

I hope this helps. It sucks to have to do this, I know.

But it will be worse if you overextend this courtesy and it ends up putting you out of business. I’m not saying people that abuse your payment policies and return policies are evil. What I’m saying is they are desperate. And desperate people will take any advantage to keep their heads above water. You don’t want them to take you down with them!