Payment Terms for artists and craft businesses.
February 01, 2010
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.
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.