What’s the Net on Net terms?

Author: Tracy & Robin (based on years of experience)

Should Jewelry Designers extend NET terms to accounts when they are just starting out? Or Ever?

One of our master-minders for b-school asked this question in our forum yesterday:

Have any of you ladies worked with wholesale accounts with Net 30 terms? If you have, and the account hasn’t paid in 30 days, how do you reach out to them regarding payment?

Net terms for payment are like extending credit to clients, most commonly used when wholesaling your product. When using net terms you allow payment to be delayed for a specific period of time after the goods or services are delivered. Net 30 is the most commonly used net term. “30” specifies that the account must be paid on the 30th calendar day after product delivery. This can be risky for a business with little cash flow.

A better question for a beginning jewelry designer is: To Net or Not to Net?

When you are just starting out in biz (and if you follow my advice and certainly Robin’s), extending net terms can be really tricky and risky for many reasons.

Here are a few to consider:

  1. You need all the cash coming in the door as soon as possible. Cash is King! It is the only thing that floats the start up business boat.
  2. Extending Net terms to an account that you don’t have a relationship is risky, especially in this economy with tight credit and tough business. They might NOT pay you at all.
  3. You have to be on top of collecting your receivables if you are going to extend net terms otherwise you might lose track of money owed to you.
  4. Ask yourself: Why do they want net terms anyway? Are they cash poor? Is this risky relationship worth it?

The best way to run your business is to only accept payment in advance or at the time of shipment via credit card or check. One tip to incentivize prepayment or payment at shipping is to give a small discount. This makes sense if you have a client that is willing to send you a check up front (no credit card fees). Generally, a 5% discount is best. If you build that 5% into your pricing, you won’t even lose any money on the deal (something we will talk about in F&T Volume 1: Laying the Foundation).

In many cases, as in June’s case above, you will be working with business like a museum. Many museums will only take an order with NET terms because of the way their accounting is structured. You will have to make a choice between avoiding risk and taking the account.

If you are in a case that you MUST take the order on Net terms and you REALLY want the account, follow this formula:

1. Develop a relationship with the buyer first. Ideally, you give “terms” after you have sold to an account on a regular basis. A minimum of 3 times is a good read.
2. Ask for credit reference form accounts that they currently sell to AND call them or email them.
3. Use your best judgment. How are they reacting? If they seem desperate, they probably are.
4. Have standard practices for net terms. Send them in writing and have your client sign the paper.
5. Follow up if you have not received a check within 35 days of the receipt of the order. The interaction should be more like you are reminding them, not hounding them for payment. People are busy and often times, non-payment is just an oversight.

THE MOST IMPORTANT THING to remember when you are a designer who is just starting out: protect yourself. Avoid selling anything on Net Terms until you have built a relationship. This is not a hobby or charity, you are running a business.

Action Step:

Tell us in the comment below if you have been successful extending terms with your clients. If you have tricks for correspondence or setting standards, what have you done that has worked?

If you have had problems extending net terms, tell us that too. How did you handle your situation?

Tweet This:

To Net or Not to Net: That is the question. via @Flourish_Thrive

What to consider before you offer Net 30 terms via @Flourish_Thrive



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