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.