Net 30 Application for your accounts - with Interest Charges for Late Payment

The past three posts regarding late payments from galleries or stores hit a raw nerve.  This fourth post on the topic focuses on purchase orders on credit and an example of Net 30 terms. (This is not about consignment situations.)

How bad can it be?  If a gallery or store delays payment for purchased work, it permanently strains the relationships with their artists and makers.  In purely financial terms, it is equivalent to forcing the artists (without their consent) to extend a loan to the retail location.  In broader terms, it undermines the long-term business of the gallery or store due to the hard feelings generated.

I have empathy for the gallery and store owners who must maintain minimum cash flows during these tough economic times.  But artists and makers depend on cash flow also.  So when an agreement has been made and a transaction occurs, it is not only common decency but good business practice to pay the makers on time.    

As an artist, your best approach is to be a better advocate for your art, craft, and small business.  Your purchase order policies and Invoice should clearly state your terms for payment and consequences of late payment from the very beginning to avoid confusion and misunderstanding.

If a new account wants to order your work, I recommend that the first several transactions be handled as full payment in advance of shipping.  If these transactions proceed without incident and they request credit, Net 30, or extended payment, then you should be prepared with an Application for Net 30 or a similar credit application form that spells out the terms.

Boris Bally has graciously allowed me to show his Application for Net 30 for his accounts. Download NET30_Application.  An image of his form is shown below my signature and a discussion of each term follows.  This form is specific to Boris, so you should create a form that applies to your particular circumstances.  

Credit card alternative. To avoid the NET 30 Application Process and the uncertainty of prompt payment, you could have the store or gallery pay for orders on their credit card. They would get a "float" for about 30 days, and you receive payment immediately. The fee from the credit card company (usually 1% - 3%) may well be worth the certainty of being paid on time. You can call the store just before you ship the work and they pay with a credit card to complete the transaction.

It is also important to note that Boris states (in his Application for Net 30) that he will not send more work if the account is past due. 

Why do artists send more work to galleries if they are owed money? From what I hear, many artists think that selling some work and getting paid 3-4 months late is better than not selling work.  I don't agree with this line of thinking. It encourages bad behavior because there is no negative consequence.  Think about it, there are only two scenarios.  If the owners simply have a bad habit of paying late, then an interest charge would give them an incentive to pay on time or you would earn interest on your funds that are unavailable.  And if they are using your money to pay last month's rent, then you are risking the loss of the entire amount when they go out of business.  Is that a risk work taking? 

Harriete

Example Application for Net 30 as an image. Download NET30_Application. 

The Application for Net 30 for his accounts is probably a pretty standard form except for the clause near the bottom. Boris Bally means "Business" with a capital B when he sends his work to a retail location. If a payment is late he expects the store/gallery to pay a late fee. I have copied and pasted this important clause below:

Credit policy and disclosures for NET30 Account:
All bills are due and payable, in full, thirty days after date on invoice. A finance charge will be imposed on any amount thirty days or more past due at a periodic rate of 1.75% per month. (annual percentage rate 21%) This rate is based on your past due balance at the end of each billing period. Please note: Orders placed on past due accounts will be held until the account is current or may be sent COD at your request. No returns on orders unless prior written approval by Atelier Boris Bally. If your account is turned over to a collection agency or attorney for collection, or in the event of default, all collection, legal expenses, and reasonable attorney fees will be paid by the debtor and be processed in and according to the laws of the State of Rhode Island.

You could copy this clause and add it to your invoice. The merit is that Boris Bally clearly states his payment expectations for payment within a specific period of time, interest rate per month, annual percentage rate, how the rate is established, returns, and what happens if the account is past due.   

Of course, you would want to check your state laws for legal compliance and change the final sentence to  "....according to the laws of the State of __(your state name)__.)

Thank you Boris Bally from ASK Harriete and all the readers for sharing your insight, invoice examples, and personal experience.

If the readers of ASK Harriete have terms that they would like to share with this audience, they may paste it below in the comments or send it to me directly. It might be useful to compare terms and create momentum for prompt payment and appropriate interest payments if payment is past due.

This post was updated on January 11, 2022.

Payment Terms for artists and craft businesses.

The recent post on late payments from galleries and stores seems to have touched on a very sensitive nerve, judging by the number of comments.   Apparently, a lot of people have had some painful experiences.   I will continue to collect your opinions, comments, tales, etc., and will follow up with more action items soon. 

Today, though, I'd like to focus on establishing the right payment incentives at the beginning of a galley, store, or customer relationship.  Specific payment terms and the consequences of late payment should be written into the consignment contract, purchase order, or invoice, whichever you use.  Interest should be charged on payments not received by the due date, with no exceptions.  If the establishment is holding your cash, they should pay interest as mutually agreed in the contract. 

Like so many over situations, it is best to be prepared in advance with your Application for opening new accounts and your Ordering Policy.

Boris Bally has graciously agreed to show his Order Terms (download Order Terms) as an example.  An image of his Ordering Terms is shown below my signature, followed by a review of the terms (and some practical suggestions).  This is fairly specific to Boris' business.  You should adapt it to your circumstances.

Harriete

Boris Bally purchase order policy (Download Order Terms)

Exclusive** representation of an artist's or crafts person's work should require a minimum purchase. In Boris Bally's example, this only includes the area code.  Note that the Exclusive Representation is not extended to an entire city or state. Keep in mind that everything is negotiable, but why should artists offer Exclusivity for their line if the retail establishment is not adequately representing or selling your merchandise or art.

Everything is negotiable but establishing a  minimum amount for annual retail purchases is one guide for an Exclusive Representation. The big picture is that the retail establishment should clearly establish that they represent and sell within a specified geographic area to demand exclusivity to a state or several state boundaries. 

Consignment*** is for select exhibitions. Consignment is a very difficult way to make a living from your work. You don't have any control over inventory, display, or promotion and have no guarantee that your work will sell. It can sit there for months, or even years.)

Payment is outlined clearly for first-time orders, Proforma****, and accounts.  It is suggested that you try to get credit cards for orders (which means prepayment so you don't have to chase down checks)  Even though that entails a credit card fee (usually between 1-2%) it's worth not having to worry about getting paid in 30 days, or subsequent phone calls and emails when the payment doesn't arrive.  Stores are more used to this and they get 30 days from the credit card company so it doesn't make a difference to them.

Delivery should be clearly described. Sometimes this might be called Shipping.

Shipping indicates who is responsible for shipping to the gallery or store and whether it is a fixed % of the total order for simplicity, or based on the weight of the box(es), or the dimensional weight of the box. (Shipping companies charge by the dimensional weight of the box if the box  is very large but light.) Keep in mind that Boris Bally's example is for the purchase of retail goods (not on consignment). 

It also might be a good idea to clarify your preferred shipping method, for example, ground or air, USPS or Fed Ex, etc.

Purchase Orders usually expect the store/gallery to pay shipping. Consignment Contracts usually expect the artist to cover shipping to the Gallery or store. This increases the cost to the artist.

Order Policy specifies that the order may not be canceled and they do not offer cash refunds.

ADDITIONAL CONSIDERATIONS:

SPECIAL ORDERS:  If you will produce special orders or custom items establish your policy in advance including the lead time needed to produce the item, pricing, and returns or exchange on special orders. 

REPAIRS AND ALTERATIONS: How do you want to handle repair and alterations to your work? Are you going to charge for repairs? Are you going to charge for shipping? Can your work be re-sized or changed to fit the person or installation? 

MINIMUM ORDERS: Do you have a minimum order? Do you have a minimum for first-time orders? A minimum for subsequent orders? Is this a dollar amount or a specific number of items?  

INTERNATIONAL Orders and shipping?  International shipping is incredibly expensive. I shipped a pair of earrings to Australia and it cost the customer $28.00. Unless you have lots of experience with International Shipping, perhaps you will want to handle this on a case-by-case basis.  

If the readers of ASK Harriete have a TERM Sheet, Ordering TERMS, or Purchase Order Terms that they would like to share, please consider leaving your ideas as comments below or write to me directly. It would be great to develop an example of Purchase Order Terms in the Professional Guidelines, but I need your help.

Harriete

Definitions and image information are below:

"Pain" image found at: http://research.unc.edu/endeavors/spr2005/pain.php

Plan Pin was constructed by Harriete Estel Berman from recycled tin cans.

Professional Size Pin constructed by Harriete Estel Berman from recycled tin cans.

Exclusive** representation: The term “exclusive” implies that the gallery will be the only representative for the artist usually within a stated geographic boundary, for a specific body of work, or extent of sales. The geographic territory could be limited to a single city or town, a radius of a specified number of miles, the region, one state, several states, or nationwide. As for the scope of an artist’s work, an exclusive representation could be limited to a specific body of work, or a specific medium or type of work (e.g. jewelry vs. hollowware).

In contrast, the term “non-exclusive” means that the artist may sell the same work to a multiple number of businesses within the stated geographic territory.

This definition was taken directly from the Overview in the Consignment Contract as part of the Professional Guidelines.

Consignment***: Consignment is where the artist loans the work to the gallery or store and is only paid after the purchase of work. In effect, they borrow work from an artist for display in the gallery and then pay the artist only when it sells.  This arrangement limits the gallery’s capital outlay, so they can devote more of their resources to paying for rent, staff, publicity, or other costs of doing business.

A consignment arrangement has advantages and disadvantages.  For example, one advantage is that consignment can allow a gallery to show risky or difficult work since their money is not tied up in purchasing inventory.  However, a disadvantage is that even though the artist’s work is in the gallery’s possession, the artist isn’t paid until the work is sold.  This business arrangement is complicated enough that misunderstandings and difficulties can arise if the parties have not been clear about the terms of the arrangement from the beginning.   

This definition was taken directly from the Overview in the Consignment Contract as part of the Professional Guidelines.

Proforma****: Proforma is a business term for "Assumed, forecasted, or informal information presented in advance of the actual or formal information. The common objective of a pro forma document is to give a fair idea of the cash outlay for a shipment or an anticipated occurrence. Definition from businessdictionary.com

 

This post was updated on January 11, 2022, to provide current links.