Show Me My Money!

DESIGNERS DEALING WITH RETAILERS WHO DEFAULT ON PAYMENT, DECLARE BANKRUPTCY, AND MUCH MORE...

This past week, many of us have been dealing with a major retailer who declared bankruptcy without much warning. While we had all been doing the standard dance waiting the exhorbitant and very unecessary 60 days (that we all know often turns into 90) for our money, many small designers were blindsided and feeling completely lost when this new development occured. After hearing from a few others asking me what to do, I decided now was the perfect time to discuss:

IS IT JUST ME OR IS EVERYONE GOING THROUGH THIS? AM I THE ONLY ONE WHO DOESN'T GET PAID BY MY CUSTOMERS?? WHAT SHOULD I DO TO COLLECT?

Well, if you're a new designer, feel comfort that you aren't alone. We all go throw it. Unfortunately, as retail is suffering more and more, it is only getting worse. Many small designers land their first order with a chain or major, and its immediatley exciting...I've made it! Everything will be smooth sailing from here! Unfortunately, you may not know about their payment terms and return policies. Working with chains and major retailers can be a fabulous opportunity for your company, but it is very important to evaluate your capital before getting involved.

THINGS YOU SHOULD KNOW ABOUT CHAIN AND MAJOR PURCHASE ORDERS:

1. Most majors pay on 60-120 day terms (and often don't stick to their approved terms)

2. Trunkshows and special sales can also be subject to these terms.

3. Their return policies all vary, but they usually reserve the right to return their product for full return value months after the products have been purchased. You may even have those returns applied before you are ever paid, thus never collecting more than a portion of your original invoice.

4. Now: Are you in a position to deal with capitalizing the investment from production until partial payment? It is absolutely crucial to read all the fine print with their purchase orders and return policies to determine if you will be able to handle this. You will only disappoint your loyal customers and retailers if you are out of business and can't fill any orders based on a financial cash flow crunch.

If you're dealing with a boutique or major, you should also know what to do it if you payment doesn't occur. Many of us are not good at asking to get paid. We are designers, not collection agencies, thus making many of us prone to intimidation when they tell us to wait, and we shouldn't be so demanding. We aren't being demanding. We made the product, paid for it, sold it, waited for our payment, and didn't receive it. With the price of metals always soaring, it becomes more difficult by the day to stay alive in their industry.

WHAT TO DO IF YOU FEEL ITS TIME TO ASK FOR COLLECTIONS ASSISTANCE?

Well, you really only have a few options if you feel there is just no chance you'll be paid for your goods:

1. Continue with sending statements and doing regular proper follow-up

2. With proof of proper follow-up and invoicing, you can submit your claim to small claims court in the location of the retail outlet (note the amount must be within the limitations of small claims court).

3. You can hire a collection agency to do the collection process for you, but they will charge you a rather large fee. A feel which is normally a hefty percentage of what they collect.

4. Walk away and don't do business there anymore. Just toss away the business card, and don't be fooled again. Write it off to bad debt and try not to make any enemies with the store. No matter what the store name is, if you aren't getting paid, you won't stay in business long which won't make you any more well-known. Don't be fooled again.

And finally, as I was discussing earlier:

WHAT HAPPENS TO ME IF A STORE DECLARES BANKRUPTCY?

Unfortunately, I don't have good advice or news here. I'll share my own learning experience of the week and just say you don't have many choices. Once bankruptcy is declared, contact a lawyer, and get in line. With the protection of bankruptcy, they will now have a long, very tough process to go through and evaluate who will get paid, how much they will get paid, and when... Thus, get in line and be prepared to wait a while for a partial collection.

Do you have a story or suggestion for other designers on how to handle these complicated and often uncomfortable situations? Please share - we can all use the help sometimes!