Net 30 and getting deposits for orders

Jenny writes:

Also I read a few posts on this but maybe this isn’t the focus of your web-blog, but many boutiques have net 30 terms, if I am a new designer could I ask for a deposit at time of order? If so what is a reasonable deposit and should it be non-refundable after the cut off date?

With regards to net 30, I realize that many stores have terms they list as acceptable to them but if your policies differ and they like you enough, they’ll bend. It’s not a one-way street. If anything, your terms take precedence over theirs. For example, I once had a customer -who I had a bad feeling about- who midway in the cycle, informed me that he would only pay net 30. I said “fine, find another pattern maker. My terms are that I get paid at delivery”. Best decision I ever made. He threw a horrendous fit and actually said that he’d complain about me to “the highest powers of the apparel industry” but he ended up leaving town three weeks later, stiffing the contractor (a friend of mine).

About the deposit, I do not think it is a good idea to ask for a deposit although I hear that more and more DEs are doing this and getting it. I have no personal experience with this practice. I don’t like the idea of it and I’m not sure why it sits ill with me. I asked Miracle in an effort to clarify my thinking and she said that if you ask for a deposit, you’re basically asking the buyer to fund you. And if you want the buyer to fund you, you should be willing to fund the buyer. When I asked her what she meant by “funding the buyer” she said she means that she should be able to return what didn’t sell. In other words, asking for a deposit could expose you to a buy back guarantee. That would mean you’d be willing to take back whatever items didn’t sell. I am really opposed to that too. [JC Sprowls brought up some questions about buy back guarantees that I’ll be addressing later.]


Still, I know a jewelry designer who gets deposits. Miracle said it could be that the practice of deposits is different in jewelry, it may be a standard practice in that industry. The designer I know mentioned that deposits are not unusual owing to the constantly fluctuating price of gold. She is charging 10% of total invoice. Since her average invoice is $50,000, her input costs are considerable and she only produces to order. In jewelry, her operation is considered to be closer to custom work (private label) so maybe that’s another reason she can get it. Miracle also said she knows of crafty type gift shops who are buying from tiny crafty companies and they are doing deposits in exchange for discounts off of wholesale invoice. I’ve also heard this but personally, I don’t know anyone who’s made these kinds of arrangements. Hopefully, they’ll offer up their experience in comments.

About private label; if you’re producing an item specific to a retailer’s requirements such as a fabric you’re only using for them, then I’d think that a deposit would be mandatory. Private label is considered to be custom work. You always get a deposit for custom work because you have no guarantees you could find another customer to buy the goods if the store reneged. The usual deposits are 50%-60% of total invoice.

There’s another issue related to deposits you need to watch if you’re getting the deposit payments via their credit cards. Technically, according to the merchant services agreement you sign, you cannot charge someone’s card unless you’re shipping product that day or within 24 hours. Technically, accepting deposits with charge cards could expose you to chargebacks from whoever services your merchant account. Legally, the buyer can get their money back from you with no problem. You have no legal standing because your merchant agreement governs how you are permitted to use and process those instruments. The merchant agreement has precedence over whatever you and your buyer agree to. In other words, they can back out of the deposit agreement and there’s nothing you can do about it. If you’re going to take deposits, get a check with the purchase order. I’m not sure of the merchant services policies if it is a debit card but I think it is the same. Personally, I’m glad that my book printer will accept deposits on my debit card because it’s convenient for me but we have an established relationship. I know they don’t like it. Previously, they required a check.

With regard to the deposit and “should it be non-refundable after the cut off date”, that is an agreement you come to as a condition of sale. If it is private label -a custom order- I’d definitely say the deposit was not refundable. You can try to resell the products elsewhere to recoup your profit margin (assuming the deposit covered your costs) and if you can great but you should not guarantee to the original purchaser that you can refund a portion of their deposit. Informally, it’s another matter. It could be you sell those goods easily, incurring few transaction costs in the process meaning you have the ability to refund the balance as a matter of good will.

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17 comments

  1. annie c says:

    If a designer is doing private label for a store and the patterns are made specifically for that store – do you think the store should incure the one time cost of designing and patternmaking in addition to the wholesale price of the garment? The DE would not be able to sell the designs to any other store. In that case it would be ok to charge the store a deposit?

  2. Mike C says:

    The standard way to take deposits on credit cards is to pre-authorize but not capture funds. Once pre-authorized, you have a certain amount of time (depending on your merchant account) during which the credit card is guaranteed to clear for the amount you authorized. We do pre-authorizations on all of our web-based retail orders and then capture funds when we ship. We also pre-authorize some new wholesale accounts.

  3. Jane says:

    On freelance patternmaking I always get a deposit if I have not done business with the client before and it is a DE. If it is a well established company, my odds of getting stiffed are relatively low. Always, my invoice is issued as “due upon delivery”.

    Thankfully I had already established this policy many years ago when I got ripped off by a “designer” who hired me to knock off an item and then never picked up the stuff even though I called and called. He then had the nerve to take me to small claims court claiming I took his money and didn’t deliver the product. I went to the judge with the patterns and told him that I required half down and half at the end and that the “gentleman” was free to take his patterns when the other half was paid for. The judge ruled in my favor, but I never did see the other half of my $$$.

    I guess the differences are between providing a service and providing a product and the size of your operation. I am a one man show and there is a direct correllation between my patternmaking labor and my income. Depending on the size of your business, there may be not be as large a percentage of income riding on the receipt of one outstanding invoice.

  4. Kathleen says:

    If a designer is doing private label for a store and the patterns are made specifically for that store – do you think the store should incure the one time cost of designing and patternmaking in addition to the wholesale price of the garment?

    Heck yeah!

    The DE would not be able to sell the designs to any other store. In that case it would be ok to charge the store a deposit?

    Like Jane said, it depends. If it’s a new customer I get a deposit but this falls under custom work so you can. It’s not a deposit based on delivery of finished products that I’m representing myself to be the manufacturer of. Like Jane said, one would be providing services.

    The standard way to take deposits on credit cards is to pre-authorize but not capture funds. Once pre-authorized, you have a certain amount of time (depending on your merchant account) during which the credit card is guaranteed to clear for the amount you authorized.

    I agree preauthorizations are great for what you’re using them for (and thanks for bringing that up!) but Jenny would need the cash in order to proceed. She needs the deposit to fund the production of the order.

  5. J C Sprowls says:

    IMO, the initial installment is a deposit on goods. My handwritten invoices for custom clients read precisely that. Though, I have pulled down my merchant agreement to comb through it. Kathleen raises a strong point.

    My current policy is that the client is entitled to the goods/trimmings if they chose to stop the work order. If the client stops work after the garment is laid/cut, then the charge is prorated for the hourly work applied up to cutting. Otherwise, the 2nd installment is payment for the work order due upon deliver.

    I’ve had two clients (ever) stop work after the pattern was cut and ask for the patterns. In that case, I triple the drafting fee. The assumption is that patterns are my IP and that I’m granting the buyer license to produce if I allow them to walk out of my shop. To date, no one has actually purchased their personal pattern from me.

    But, I’m keeping my lips tight on the rest because I want to encourage feedback.

  6. Eric H says:

    This whole deposit and “funding the buyer” thing is very interesting from a TCE point of view. (Yes I know, >>).

    The assumption is that patterns are my IP

    Really? My understanding has always been that when someone hires someone to do work, the hirer owns it, not the employee or contractor. It seems that the incentives would be misaligned as you have described it: they bring in an idea that they think will sell, you could do a less-than-stellar job, they decide not to pay, you take their ideas to market and clean up. It’s called “opportunistic behavior”. If they own the patterns they contract you for, then you either do a good job and get paid or you don’t and don’t.

    BTW, who are “the highest powers of the apparel industry”? Marlboro? Benson & Hedges?

  7. J C Sprowls says:

    Eric,

    Your understanding of contracted work is the same as mine. If a designer hires a patternmaker to create patterns, the work is considered for-hire. Since the pattern is the work product being purchased, the IP behind it rests with the designer.

    However, in a tailor’s shop, the tailor is the designer and the client is purchasing a garment. That is, unless someone elects to use an unconventional business model. In that case, the pattern is the plan to deliver the work product – not the work product, itself.

  8. Kathleen says:

    The comments for the post have gone way off topic. The topic was deposits for production and not custom clothing. Some new people may get the idea that the standards in custom clothing that JC mentions can be applied in our business but they can’t. The question here was deposits on an order of manufactured goods or even deposits for private label goods (good points, all) but now the topic has veered toward pattern making services for custom clothing which are not standard in the apparel industry. I think that’s better left to Pacc.

    JC: your practices may be standard and acceptable on the custom clothing end of things but they aren’t on this side. According to your logic, I’d make three times as much money being a sample maker than a pattern maker. There is NO way -in this business- that I can charge three times as much money for providing the pattern after the fact of failing to deliver a sample. I don’t know how the PACC or home sewing people manage to get away with that but they’d get laughed out of the room on this side of things so I’m not going to dispute those standards knowing nothing about them (they don’t make sense to me) but that discussion doesn’t belong here. I adore you and deeply appreciate and enjoy your comments but I am concerned that a new visitor who has never worked in the industry will think that the practices you describe from the home sewing side of things are standard and they’ll try to apply those standards to manufacturing clients (even greener DEs) that they happen to come across and then I have to gently explain they’re guilty of exorbitant pricing practices (or untoward IP practices) and I’ll have to unmuddle those messes. I’d prefer we just drop the whole topic of custom clothing sewing altogether and leave that to PACC and the home sewers. I can only imagine or hope that PACC exercises the same restraint and respect as it applies to our business.

    People look to this blog as an information resource and this entire thread has derailed and I’d hate for someone to read some of the comments and think that this is how they’re supposed to do things. Visitor: if this describes you, none of the comments discussing custom clothing should be confused with accepted practices in the apparel industry; those standards do not apply in our business.

  9. Esther says:

    The discussion has been interesting. From my experience, the fashion/apparel business has operated without many contracts. I guess there are implied contracts when a retailer places an order. People in the business know that the order is dependent on a lot of variables. Communication and delivery is key to retaining a good reputation with buyers, etc.

    The deposit issue is a new one for me. I have never seen it done in the wholesale business, even for private label. Occassionally you do get stuck with merchandise, but there are ways to deal with it.

    I guess this is all part of the general movement towards people trying to shift responsibility, financial and otherwise. I have seen a general trend toward more paperwork (contractual) in the apparel business, but not to the point of deposits.

  10. J C Sprowls says:

    Kathleen,

    I appreciate your feedback and it is well received. I am in process of changing my business model and that I am learning while I do it. I agree that differences exist (i.e. custom v. production); and, that I will drop mention of custom work since it may serve to confuse the audience.

    To clarify: stopping a work order and failure to deliver (or, work not acceptable) are separate issues. I suggest that if a client stops the work order, there needs to be a reasonable degree of reconciliation. If a client refuses work because it is unacceptable, I am obligated to either make it right (on my dime) or refund the client’s money – whatever it takes to make the client “whole”.

    BTW: triple my fee sounds like a lot; but, it isn’t. It’s competitive with the rates you describe as typical in the industry for contracted patternmaking services. Since patternmaking isn’t my business, it’s only a process that I use, I can stand to learn a few things.

  11. katie says:

    I am a small DE and have just instituted a policy of a deposit only for buyers who have refused their orders in the past (and left me with inventory). It is a take it or leave situation that I have presented them with. My goal is not to ban certain stores from buying the line, but to weed out the repeat offenders. Also, some sketchy stores do turn themselves around and this seems to be a good way for them to show their commitment.

  12. beth says:

    what i’ve never been able to do is wrap my mind around the fact that stores get time to pay for product. why net 30? it sounds like a recipe for not getting paid. and yes, the store can be researched but if you’re a new DE, it would seem even if the store’s normally good about paying, it may not feel that way as much with someone new. why not COD? if there’s such a problem with sell-thru, maybe the DE could have a money back gaurentee for clothes that don’t sell thru. what DE is going to want people to see their clothes for 85% off anyways? the DE has pay up front for fabric, for pattern service, etc. but the stores get a time break? either they have the money or not. like i said, i don’t get it. i’ve worked in clothing retail and saw alot of putting off paying bills as long as possible which only adds to the 30 net mystery for me.

  13. Charquis says:

    What is a net30?

    Is it customary to give a boutique your merchandise and then wait for them to send payment?

    Is it a good idea to have a preview show and invite boutique owners, consumers, family and friends, as a way to introduce your line and get orders? Is this considered a trunk show?

    How do I approach a boutique owner with my designs as a start up designer?

    What is a reasonable price for fabric per yard wholesale? ex: stretch cotton

    Are there any tradeshows or textile shows going on now? (October 2006)

    Is it to late to manufacture a spring line, have trunk shows, and everything else invovlved with getting your first order?

    I am going to New York October 6, any suggestions on where to purchase fabric wholesale for a spring line?

  14. Harper says:

    Deposits have become expected in the Bridal category. Our stuff is too high end and Bridal Stores can go out of business fast.
    Last year at market I ended up with ONE store who never paid the other 1/2, never signed the Policy Agreement after being handed it in person, emailed, and snail mailed at least 8 copies. 6 months of calls and emails telling her we have her order ready but___ resulted in our dropping them. If anyone wants to know who it is I will email the info.

  15. Harper says:

    I think it’s only fair to expect full payment from a client you don’t have an established business relationship with. Tell them you’ll give them a year and see! If they prove reliable then allow it and make it a conditioned agreement.

    Same with area Exclusives! I had one store insist on it, and now I find out she’s still not officially open a year later afterall! Exclusivity rescinded Sistah.

  16. Louise says:

    Re designers requesting deposits. The fashion industry is the only industry that operates in this backwards and basically unethical business behavior.

    If you are producing an order for a store and you do NOT ask for a deposit u r basically lending the money at a zero percent interest rate.

    As a designer, you are purchasing the fabric and paying for the labor FOR THE STORE! A deposit only covers the labor and materials ..which is being prodipuced FOR THEM! This is not going to pay for your work or your overhead, etc. this is why so many smaller FASHION designers go out of business, not to mention many stores have poor credit so it is unwise TO NOT TAKE A DEPOSIT. Even if a store has good credit, many are unethical and do not pay designers on time.

    So if u operate in this WISER AND SMARTER MANNER BY REQUESTING DEPOSITS YOU WILL SURVIVE that is making sure your designs sell well and fit correctly etc. but if you have the background and the stores know you then that is the way to go. Never trust the stores!

    In Every other industry deposits are the norm and that is why they operate more efficiently.

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