October 1, 2008.
I have been following the financial "crisis" rather closely the last few, oh I don't know um 18 months! How could I not be following it? What small business owner is not checking her list once or twice, finding out which company has been naughty (not paying bills on time) or nice (uses a credit card)? We have all heard the sob stories of how times are tough, blah blah blah - I hear ya, I am there and times are hard. Sales are down, times are hard - now not live in a box, wear a potato sack, make rock soup hard - but being a small business owner right now - not so fun.
I wrote another post about this very topic over at Silicon Valley Mom Blogs. I think here though I may take a different approach, a not so much Chicken Little but more a what I call,
"If you do not pay me I won't ship your product, and if I don't get paid I don't get to EAT!"
Just so we are all on the same page I thought I would tell you how my business works, not how everyone does it just how I do it. My way is neither right nor wrong - but it has worked for a number of years. I have my products sold through channels, these are sales channels that have already existed before lil' old me came along. I have lots and lots of channels, sales channels that all do their billing, their payment schedule, their advertising, um their list of who gets paid first differently. Sometimes I am on top, and sometimes I am not. Humor me as I go through the details:
The Wholesale Process
- So - let's just say a popular children's online store sells one of my birth certificates: $35.00 (that is the retail price).
- Then they charge the customer a $10.95 for shipping.
- A $2.95 handling fee.
- Let's add in a $5.00 gift wrap.
- Next the on line store takes the customer's credit card and charges the customer a total of....wait for it.....hold on I must add on the fly, carry the 1, add the 5 okay got it: $53.90.
- Confirm order has been taken, send nice thank you email to customer that order will be shipped in less than two weeks.
- Automatically (or manually) generate an email that goes to my company placing the order.
- My company sends an email back, confirms the order.
- We put the order through our process.
- We have the art made, it is put on the tile. It is personalized, can not be re-used or returned.
- We put the ribbon on the tile.
- We kit the order.
- We make a shipping label for the order and we send an email to sales channel with tracking number and ship date (yes we are efficient like that).
- We gift wrap the order.
- We ship the order on time, just like we promised.
- We bill the company for the order we made.
It has now been two weeks since we made this order. We are out the money for purchasing the tile, the ribbon, the gift wrap, paying the employees to make the tile, ribbon the tile, shipping the tile. We have done our part of the bargain - we have kept up our part of the bargain, am I repeating myself again?
- We sell the tiles wholesale for $17.50 (the sales channel doubles the price).
- We charge $10.95 shipping charge, this is a charge determined by Fed Ex, we don't profit.
- We charge a $2.50 handling fee, it may be lumped into shipping but we have to make a box, wrap it in bubble wrap,use popcorn, seal it, label it.
- We charge a $5.00 gift wrap fee - consists of wrapping paper, ribbon and a hand signed gift card.
- We are owed $$33.45
Now you are probably thinking, what is the big deal Jamie? Why do you want your money so bad? It is not that much money to haggle over, just sit tight and wait for the money.
"I Want My Two Dollars!"
Let's just say for argument sake that we have a 30 day net with this company and we trust they will hold up their part of the bargain. You are correct- we are set up for this, we are fine waiting 30 day.....yep, 30 days, we will wait - and after 30 days? Then what? Let's just say 30 days comes and goes, we send out a reminder that they need to pay.
But you see dear friend the sales channel took a credit card - the money cleared 48 hours after they took the order. And I am not just waiting 30 days for that payment, I am waiting the two weeks it took to make the order(14 days) + 30 days before I get paid.....44 days IF they pay on time. If they pay on time - all is great, all is good - what I signed up for a "win win". However, if they do not:
By day 45 we have sent out numerous reminders, phone calls and still not a response. At this point we threaten to hold all orders - which we do with a nice, but stern email stating why we are going to be holding any existing orders if this is not taken care of. By day 60 we send out another email continuing saying now we will hold orders and we send the email to the owners, the customer service, the accounting department (again) and we are still out all of our money. Let's also say that this is not the only invoice we have outstanding with this company - let's say there are like 10? Hmmmm.....shoot now I have to do math again, 10 x $33.45 = $334.50.
Fast forward to about 90 days and we still have not been paid. We refuse to accept orders. Again, a little problem in our process, having to shout "NO DON"T SHIP THEIR ORDER!" Or put post-it's on all the orders not to process - again, a tad irritating when we held up our part of the bargain. We start to consider suspending our partnership and contacting the poor customers products we have. Well, it can not get worse right? Right?
Bye Bye Sales Channel
One day while surfing the ol' internet we see the company is gone. The website is gone. The phone number is disconnected. There is no one to contact to pay us, there is no forwarding address. Our last email came back as undeliverable. We can not find them on Google, we can not chase them down for our measly $300. I feel bad they went under, I feel bad the company closed - I can not imagine how hard that is, but what about me? What about me getting paid? What the heck did they do with the money? Pay someone else? Pocket it?
Multiply this time 5, 10, 15 or even 20 channels? What if more and more of my channels stopped paying their bills or went out of business? Ten channels - heck that is rent payment right? That is a salary. Heck just ten of those is huge....huge I tell you, and I am not kidding. It has not gotten that bad yet, but it has happened, we have lost channels, we have lost money.
Blame it On the Economy
I got into business because I wanted to own this, I wanted to be in charge - I know that. Nor have I ever been in business during a down turn, a recession a (gulp) Depression - all has been good. This just one example of what has happened to me.
Now this is easy for me to blame to the economy, gas prices, raising food cost, whatever. However, as a small business owner if I don't get paid I can't stay in business. Then I don't spend money. That affects other businesses that I would purchase from - my tile company, ribbon company, office supplies, phone company, shipping supplies - I can't pay those people. Not to mention my people, I can't pay my people.
The Economy Affects Everyone
I have tried to explain this little fun scenario (not so fun right?) to those nay-sayers that tell me all is fine. Yes, all is fine....for now. But this little story I tell you about one channel - it is not made up. It is true. And companies paying late, or not paying is more common than I can tell you. We do try to make companies pay for first order, pay up front, pay before shipping or pay with credit card. Most of our channels are very good partners and we always try to work with them if we can - we understand.
And most (make that 99%) of the companies are not like this, I work with some of the bestest mostest wonderful channels, some I can call friends, even really, really good friends. But even good friends can't pay you sometimes....*
*Please note that I will not divulge which company this was, nor will I say who pays and who does not. I have hundreds of sales channels and only a little more than a handful are EVER a problem. The solution is to communicate with the other company, so both understand how they can make payments or how we can help. This post was just to make people understand that if the economy is in trouble it trickles down to us small business owners....all of us. And yes if you must know this is a true story, and NO this was not a friend....and yes I am still mad.