LONDON, United Kingdom — Not too long ago, these pages featured a piece on a number of prestigious retailers who have been squeezing young designers on payment terms and, in some cases, failing to pay on time, if at all. Fortunately, with my own small brand, I have not faced non-payment, as we only trade with established, stable companies whom are unlikely to experience cash flow problems or go bust. When smaller or less established companies have wanted to carry our product, we always ask for 50 percent payment in advance with the balance in 30 to 60 days in order to mitigate our risk. If they can’t pay, we don’t ship.
Nevertheless, the seemingly straightforward issue of payment terms, even with established, well-known stockists, can often be fraught with complications that can raise alarm bells for start-ups or young brands. What payment terms can you accept: 30 days? 45 days? 60 days, which is the most common offer? What about 90 days? Can your little brand handle that — not getting paid for three whole months?
This is the dilemma in which I now find myself. Maybe I’ve just been lucky until now because no stockist has expected me to wait more than 60 days to get paid, and many have been happy to pay in 30. But now we have an opportunity to be stocked by a shop (let’s call it “Big Shop”) with a very wide reach who will only take our product if we agree to 90-day terms.
Here’s the conundrum: when we manufacture product to fulfil orders, we have to pay our factory in 30 days. When we’ve had cash flow problems, we have been able to beg and cajole our way to paying our factory in 60 days. But they will not manufacture for us knowing that they won’t get paid for 90 days. Again, this is three whole months, or a quarter of a year.
When I explained to Big Shop that our cash flow would be severely affected by having to wait 90 days to get paid, they said they had so many suppliers that they couldn’t possibly have “different payment terms for different suppliers,” suggesting that all brands were being treated equally. Nonsense! I know for a fact that some of the established brands carried by Big Shop get paid in much less than 90 days. But let’s remember, we’re playing with the big boys and there’s no point in becoming indignant or angry. We just want to stay focused on how best to move our little baby brand ahead.
So what do I do?
Do I essentially finance Big Shop’s business and accept their unfair payment terms, or do I tell them to take a hike? If I accept their terms, I stand to get significant benefits, including greater brand visibility, increased brand credibility and more sales. But can I find a way to tough it out financially while I wait to get paid? Is the potential financial pain worth the above?
On the other hand, do I draw a line in the sand and say, “This is one small brand that refuses to be bullied?” Luckily, I have my own physical retail store and online business, so we are not desperate for the account. But, then again, it sure would be nice to have our product sold by Big Shop.
Ultimately, it’s a real conundrum, but I’m leaning towards caving in and accepting Big Shop’s terms, because it may be better to take some pain, pray for a way forward, and hope for the upside that may result from being involved with Big Shop.
But here’s one final wrinkle: in my own way, am I as bad as Big Shop, using my leverage to co-opt smaller brands? While my retail operation stocks mostly my own brand, about 15 percent of our product comes from other labels — product that we take only on a sale-or-return basis, as we are still too small to pay for merchandise upfront.
Given that I want to get paid for my own brand’s merchandise in a fairly reasonable time frame, am I being too hard on my fellow small labels who expect the same?
After a bit of thinking, I think the answer is “No.” I’m not a bully like Big Shop and here’s why:
Big Shop is a huge, well-capitalised business. They do not need to beat up small brands with 90 day payment terms. They could easily pay in 30 days, 45 days, or 60 days, if they wanted to. They simply don’t want to as it doesn’t jibe with their business model.
On the other hand, Archer Adams, is a tiny, self-financed business. We do not have access to significant capital beyond our meagre overdraft. We would love to be able to pay for merchandise in advance or on reasonable terms, but quite simply, we can’t. So we offer the next best thing: sale-or-return with really good terms: payment within 36 hours for any goods sold. And we offer a gorgeous shop with a Marylebone location, so maybe that’s not such a bad deal given the circumstances.
What do you think?
Archer Adams is the founder of Archer Adams, a fashion label and retailer based in London.