Wholesale Terms & Conditions
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One big thing I forgot to cover in my lead up to selling into new stores: Terms & Conditions (T&Cs). You’ll want to have yours internalized before making any sales calls. An interested buyer is sure to inquire about the nuts and bolts of ordering from you, and not just that, but some of these T&Cs can be great selling points for your product when formulated smartly. So let’s nail all this down now, then we’ll start talking sales process in the next post.
Your T&Cs are the set of rules that retailers must agree to in order to purchase your product wholesale. It’s your fine print, in other words.
Buyers understand that your T&Cs are there to protect your business, but you should be aware that the more hurdles you create for a buyer, the less likely they are to go to the trouble of placing an order. Remember too that retail buyers want to avoid buyer’s remorse as much as the next guy, so don’t make them feel like there’s any chance they’ll regret bringing you in.
In this post, I want to cover the different ways that you can use your T&Cs to set a buyer’s mind at ease. We’ll start by looking at each different aspect of your T&Cs to see how we can make them retailer friendly. At the end of this post, we’ll put all this information together into a sample T&C policy that you can share with new customers as part of your onboarding process.
Order Minimums: Yea or Nay?
Your Minimum Order Quantity (MOQ) is the dollar amount or case quantity that you require orders to meet/exceed in order to qualify for wholesale pricing. This is up to you, the vendor, to determine, and there’s no rule that says you have to set one at all.
Minimums are quite common in wholesale. You will reach a point when you start thinking that it’s pretty inefficient to be sending out shipments that contain only a few items, and it stands to reason that by requiring a minimum, you can increase the average order size. You could also make the case that large minimums weed out less committed buyers.
Minimums aren’t a no-brainer though. Before instating a minimum, consider the following:
- If your goal is to keep your display looking fresh and fully stocked, a sizable minimum can undermine that. Minimums encourage many buyers to wait to reorder until they’ve sold down most of your product (so that they can justify ordering your minimum). This can lead to out of stock situations and missed sales.
- Many smaller stores don’t have room for back stock, so if your minimum exceeds your allotted shelf space, they may be disinclined to bring your product in. There’s no such thing as a one size fits all minimum.
- Many larger retailers, such as grocery stores, do most of their ordering through distributors. Distributors have minimums that can be met by ordering small quantities of the many different products that they offer. Larger retailers are therefore not accustomed to planning their orders for individual products to meet a minimum. Instead, they order as needed to keep their shelves stocked.
- If your product has any kind of shelf life, your goal should be to deliver the freshest possible product to your end customers. Big orders may take a store a while to work through, which means that end customers who get the dregs of an order may have a bad experience with your product.
In the first three of those situations, a minimum would create a hurdle for the buyer to have to clear in order to place an order. The last situation can lead to quality control issues that you have no control over.
Fear not, there is a better way. Let’s put a pin in this conundrum for a moment, because we’re going to combine minimums with the next aspect of your TOCs: shipping fees.
Shipping Fees
When you order something on Amazon, how annoying it is when you have to pay significant shipping on top of the listed price? How pleasant it is when you qualify for free shipping?
Same goes for wholesale purchasing. Buyers don’t like to have to pay shipping on top of the premium they’re already paying for your product.
“Retailers hate paying for shipping. It feels like they’re throwing money away. It also means that they have to charge their customers more for your product once it’s on their shelves.”
— Clare Yuille, retailer ¹
Finding creative ways to lessen the blow of shipping should be part of your mission as a salesperson. It will lead to more sales.
Shipping is expensive, there’s no way around it. The more you ship, the more leverage you have to negotiate your rates down with your carrier, so that’s a good place to start. But you’re still looking at a substantial overall expense for your business, and one that you must recoup one way or another.
One thing you can do to control your shipping costs is to understand the ins-and-outs of dimensional (DIM) weight, and how it applies to your specific product. UPS and FedEx bill according to DIM weight, meaning that they multiply the box’s dimensions together and divide that by a certain constant. The resulting number is compared with the box’s actual weight, and the greater of the two is the box’s billable weight.
Therefore, you should make sure that your shipping carton (aka ‘box’) makes sense for the products that you are shipping, so that you’re not shipping small quantities in too-large boxes. In fact, you probably want to have a few different sized cartons available to ship in depending on the order size.
Once you have your optimal shipping cartons and case quantities dialed in, you can get an accurate sense of what it costs to ship your product to different regions of the country, given a full box. From there, you could make that dollar amount the shipping fee that you tack on to an order, but as we said, buyers don’t like learning about shipping fees on top of your wholesale price.
So what can you do to lessen the blow here?
Bundling Minimums and Shipping Fees Into a Zinger of a Sales Tool
Now that you know your shipping costs to each region that you sell to based on a fully packed, optimized shipping carton, take that cost and build it into your wholesale price. Then, instead of having a Minimum Order Quantity, you can tell buyers that you have no minimum, but that you do offer free shipping on orders over X number of cases (X being whatever that optimal number is that fits into your shipping carton).
If using this method, there are two additional things you must do to ensure that you’re not getting burned on shipping fees:
- Make separate line sheets with customized pricing for each of the major regions that you ship to, since your shipping costs will vary depending on how many “zones” a box travels through. If you’re shipping from NYC, maybe you have separate line sheets for Local, Midwest, Rockies, and West.
- Since shipping is already built into your price, you need only to tack on a modest flat fee to orders that are below your minimum for free shipping. Figure out how much extra it costs to ship a light box to each of your shipping regions, and that is the modest fee that you charge when someone wants to order just a couple of cases.
Taken together, here’s what you can advertise on your line sheet: “We have no minimum order quantity. Free FedEx Ground shipping for domestic orders of X+ cases, otherwise a $10 flat shipping fee applies.”
Voila! How friendly is that? You have built into your T&Cs an incentive for buyers to place larger orders without forcing them to do so.
Granted, having no minimum requires managing relationships more carefully and remaining in frequent contact with your buyers. But I have found that this is a key competitive advantage for a small wholesale producer. Having no minimum encourages frequent reorders, which helps you keep your finger on the pulse of each of your retailers, and ensures that your displays are staying fresh.
There’s one more benefit to having no minimum, and that plays out in your payment terms.
Payment Terms
As a salesperson for a small wholesale producer, it is inevitable that certain accounts receivable (A/R) duties will fall into your domain, since you are the tightest with your customers, and you are in the best position to leverage payment for past due invoices (by saying that you will hold off on shipping their most recent order until you have payment, or proof that it is forthcoming).
When you’re new to sales work, it can be shocking how many of your customers are consistently delinquent in paying their invoices. But business is business, and pushing cash flow to the limit is the nature of the retail trade. More shocking still is the first time one of your customers suddenly goes under and you are left holding the bag on a pile of outstanding invoices, with no way of collecting on them (unless you want to battle it out in court).
When it comes to A/R, small wholesale producers are in a tough spot. Larger businesses have dedicated collections or accounting teams that manage open and outstanding invoices. Often they’ll even have the budget to “factor” their aged receivables, meaning that they sell them to a third party “factor” at a discount, and the factor goes out and does the collecting.
Larger businesses also have the resources to perform credit reference checks on new customers. Very few small producers that I’ve spoken with bother to check credit references when setting up a new account — who in this business has the time?
In an ideal world, you would carefully screen every new account for signs of payment issues. But getting someone interested in your product is hard work, and for a salesperson, nothing is more frustrating than losing an interested prospect during the back and forth of setting up terms.
At the same time, you don’t want to get suckered into selling to a retailer who doesn’t pay their bills. Salespeople are often so eager to get into a new store that they offer (or allow themselves to be talked into offering) generous terms.
So what can you do?
When you buy something as a consumer, you usually pay for it up front, right? Shouldn’t that be how it goes for wholesale purchases too, at least until you’ve established trust? If you have no minimum per the plan outlined above, then most new customers won’t balk at the idea of paying for orders up front, and many will actually be happy to pay with credit card — not only do they get reward points, they also get 30–45 days to pay it off. It’s when you have a huge minimum that new customers are reluctant to pay up front, since that would mean taking a big gamble on an unproven product.
While credit card fees can be expensive, you get your money immediately, as opposed to net-15 or net-30 terms, where your cash is tied up for that many days (if they even pay on time). Furthermore, it only takes a few accounts going under with open balances to make you wish you’d been requiring credit card payment all along.
In the same way that you built shipping costs into your wholesale price, build credit card processing fees into it too, so that you don’t need to bring up the words “addition processing fee” when making a sale.
Authorize.net is one of the cheapest options out there for processing credit card payments, and it allows you to securely store credit card info for quick and easy payment authorization on future reorders. When setting up a new customer, have them fill out a simple credit card authorization form. Give the buyer the option of reading you their number over the phone if they’re more comfortable with that than with submitting their info electronically.
“It’s general industry/business knowledge that it’s hard to collect when you offer terms. Only offer terms when you can afford to not get paid on time. Only sell to [big box] stores if you can afford to get paid very, very late and then not in full (as they are notorious for charge backs). Never finance a store’s inventory just to get your foot in the door… Have the confidence that your brand will sell well enough to mandate payment upfront. The stores that will not buy your brand because you won’t offer terms are likely to be the ones who have a hard time paying invoices.”
— Miracle Wanzo²
If a customer insists on terms and you really want them as a customer, you have a couple options:
- You could require credit card payment for the first few orders until a relationship is established, and then offer net-15 or net-30 terms after that.
- You could offer them terms straightaway, but with the caveat that you will initiate an Electronic Funds Transfer (EFT) payment for the balance on the day that terms are up, rather than having them mail you a check. It’s wise to keep a credit card as backup should the EFT payment fail.
EFT (of which ACH is a type) is hands down your cheapest option for collecting payments electronically, since little or no fees apply —ideal for big orders and international orders. The trade-off is that it requires some setup on the part of your buyer, which is a hurdle to them placing the order in the first place. Furthermore, the retailer has to be cool with payment being withdrawn from their account as soon as the transaction is initiated, as opposed to a credit card transaction, where they have 30–45 days to pay it off.
Returns / Buybacks
There are clear cut cases where returns are warranted. For instance, if a shipment is damaged in transit, or is defective in some way, of course you should credit or refund the retailer. If you like, have them return the product to you (on your nickel), or just have them send you photos of the damage so that you have the necessary documentation to seek a credit with your carrier.
There are also clear cut cases where returns are unwarranted. For instance, if some product expires on the customer and you didn’t impose an unreasonably large minimum on them, then either the store isn’t rotating your product properly, or your product doesn’t sell in that store. Either way, you don’t owe them anything, and you have little to lose in cutting ties with that retailer.
Those are the clear cut cases. Meanwhile, any number of instances can arise where it is less obvious who should be on the hook for unsellable product.
In my post Mast Brothers Part 2, I described one such situation. Every autumn, we released new bars and simultaneously updated our packaging. Naturally, retailers wanted the new bars and packaging, so they’d place orders for it, but then the bars from the previous collection wouldn’t sell next to the new bars.
This is a tricky one, because you don’t want to go too crazy with buybacks when the product is perfectly good, but at the same time, you don’t want to penalize your customers for being excited to offer your new products.
What I would recommend in a situation like this is to encourage stores to take some time to sell down the older product before bringing in the new. Then, when they’re getting low and need to reorder but still have a handful of the old product, have them send you a photo of what they have left, and offer them a credit toward their next purchase — maybe 50% of what they originally paid per remaining unit. Ask the retailer to reduce the price of the older product and put it in a separate discount bin. Then you can get your fresh new product stocked up in your shelf space, and the retailer can recoup their costs. Everybody wins.
With each new incident that arises, ask yourself whether this is an isolated incident, or part of a bigger pattern with a specific retailer. Never just assume that the retailer is taking advantage of you unless it’s clear that they are. Always consider the lifetime value of the customer, and whether it’s really worth nitpicking over an issue. If not, just credit them, let them know you care, and keep the relationship moving forward.
Demonstrate how amazing your customer service is, and it will only serve to solidify the relationship longterm.
Exchanges
If you have a wide product line, chances are that not all of your products will sell well in every market. When buyers are placing orders, they’re taking their best educated guess at which will sell in their store. Sometimes they guess wrong.
You definitely want to encourage buyers to play around with your different products and find the optimal assortment for their particular store, because in the long run this will mean more sales for you. One good way to achieve this is to offer them a credit (50% perhaps) for products that just don’t seem to work in their store for whatever reason, which they can then apply to future purchases of alternate varieties from your line.
This is a small way of demonstrating your commitment to their success, and maybe in exchange they’ll be open to your merchandising suggestions if you can think of ways to jump-start your products’ movement in their store.
Money Back Guarantee
You might consider offering a money back guarantee in cases where you really want to be in a store and the buyer is on the fence. You shouldn’t make this a blanket policy on your line sheet, but why not have this in your arsenal of bargaining chips? Include a caveat saying that they need to give it X number of months per X number of units ordered, and if it doesn’t sell, offer to reimburse them for any unsold product that they return to you in salable condition after that trial period. Why not? What do you have to lose? Reorders are where the money is at in wholesale, not first orders. If your product doesn’t sell in X months, they’re not going to reorder anyway, nor do you want dusty product sitting on their shelf making your brand look bad.
This gets at the heart of our golden rule of wholesale: It’s all about what the retailer needs. In this case you’re giving them free insurance to back up their purchase. (Maybe all that you ask in exchange is a primo spot and that they sell it at your MSRP.)
Chances are that some of it will sell, so you’re not going to eat the cost of the entire order. And if none of it sells, that is valuable intel that you should take to heart in compiling your targets list — maybe your product does poorly in that geographical region, or in that retail channel.
Look at it this way: when a retailer doesn’t reorder after their first order, they’re probably not going to take time out of their day to explain why. But if they have to return unsold product, at least you have their ear for the duration of that process, which is a golden opportunity to get honest feedback.
Resale Numbers and Tax IDs
This is a small but important thing to remember: as a wholesale business, you are selling your product to a retailer, who then resells your product to the end consumer. The retailer (aka reseller) collects sales tax during their sale to the end consumer, so you do not need to charge sales tax when selling to them, so long as they provide you with their Resale Number or Tax ID.
Resale Numbers are issued to retailers by their state’s tax agency, and Tax IDs by the IRS. Just make sure you have Tax IDs on file for every retailer that you do business with so that when the tax man comes around, you can show that you haven’t been exempting customers without proper authentication.
Putting All This Together Into a Terms Sheet
Let’s now take everything we’ve learned and put it together into a Terms Sheet that you can be proud to share with your retailers and prospects.
Provide a link to your full T&Cs from the wholesale page of website (as shown in Point 3 of this post), and also ask retailers to read and acknowledge them as the final step of your new account setup process (at which point you also capture payment info and shipping details).
You should also put an abbreviated version of your T&Cs at the bottom of your line sheet, showcasing the ones that are effectively selling points for your product (e.g. no minimum and free shipping). See the sample line sheet in this post for what this might look like.
Alright! We’ve come a long way, thanks for reading to the end of this beast of a post. What am I forgetting here? Let me know in the comments below!
¹ https://www.indieretailacademy.com/whistle-stop-guide-language-wholesale/
² https://fashion-incubator.com/establishing_payment_terms/
