Through the first three installments of this four-part series, we covered the following topics:
- How much inventory should you commit to any given retailer?
- What does the retailer setup process entail?
- When should you leverage a distributor to service your retail channel partners?
In this final installment, we will assume you were able to close the deal and setup relationships with multiple retailers and/or distributors. You now have inventory on retail shelves and customers are opening their wallets for your products. This is a great day! But, how can you be sure that you will be paid in full for the products retailers sell?
Unfortunately, getting paid correctly by retailers is anything but trivial. This is one of the reasons why so many hardware companies try to focus their attention on B2C sales exclusively. However, as our clients commonly hear from us, e-commerce sales are only projected to account for about 16% of all retail sales worldwide by 2021. Currently, e-commerce sales are 9% of the US retail market.*
To reach the other nine tenths of your addressable market, retail will likely become a necessary channel. Getting paid by retailers with very long credit terms is critical, especially for a high growth startup carefully managing cash flow.
There are four primary issues to consider when it comes to getting paid by retailers. We’ll explore each of these herein:
1) Prepare your shipments correctly (of course)
As discussed in installment 2 of this series, staying compliant with retailer’s shipping requirements is difficult. Preparing and labeling shipments, packing lists, bills of lading and shipment notifications according to a retailer’s routing guide is detailed work.
If you do not prepare a shipment correctly, retailers will issue chargebacks. Chargebacks are issued for a set dollar amount or percentage of the purchase order value based on the size and type of infraction. These chargebacks will be taken out of the retailer’s payment to you. Some retailers are tougher than others when it comes to the complexity and enforcement of their requirements. Make sure you review each retailer’s routing guide carefully, or consult or hire an expert.
2) Be prepared to dispute bogus chargebacks
Every retailer (yes EVERY retailer) is guilty of applying chargebacks they are not entitled to. For example, retailers may claim that you short-shipped the order. In other words, a retailer may claim you shipped a smaller quantity of products than the purchase order called for.
Providing the retailer with photographic evidence of the shipment at your warehouse dock or on the shipping carrier’s truck can help you dispute and overturn the chargeback. The same is true if you can capture a weight of the shipment at your loading dock or in transit via the shipping carrier’s records.
Retailers’ receiving processes are not perfect. Inaccurate counts on the receiving end happen pretty frequently. Chargebacks for incorrect labeling or illegible carton barcodes are also common culprits. Not sending an Advanced Shipment Notification (ASN) on time comes up a lot as well. Showing timestamps of when ASNs were sent is very helpful when disputing these types of chargebacks.
At Rush Order, we proactively prepare “defense packets” with data and photos, in anticipation of every shipment being subject to a chargeback.
Most retailers will send you a scorecard of your performance, often including chargeback data. Chargeback notifications should also be visible in each payment remittance the retailer typically sends through EDI. Here are a couple examples of scorecards with vendors’ names redacted.
3) Credits for returns can be bogus too
At this very moment in Rush Order’s warehouse, you are almost guaranteed to find at least one toaster oven in our returns storage area, despite the fact that we do not ship toaster ovens for any of our clients. So, why are toaster ovens being returned to us?
We actually receive all sorts of random items and products that do not belong to us. Retailers’ return to vendor (RTV) processes are not perfect. It’s amazing what an employee in a retailer’s returns department will lump together and send back to a vendor.
Make sure you have a process in place to reconcile the items that are physically returned with the credits retailers take for those returns. Retailers will short pay your invoices based on their own calculations of what they returned to you. Expect wrong products and incorrect quantities at every turn. You probably do not want to be in the business of issuing credits for toaster ovens.
4) Not all retailers are created equal
Know your customer. This idiom is true when it comes to sales, but also when it comes to collecting cash for those sales.
Certain retailers are notorious for issuing lots of chargebacks and almost never overturning themselves when they make a mistake. This is despite clear evidence that the shipment was prepared perfectly.
Unfortunately, this naughty list of misbehaving retailers spans many different product categories including department stores, consumer electronics, toy stores, sporting goods and others. Speaking with Rush Order or another expert that has direct experience with specific retailers is a good idea before you finalize your margins on any deal with a retailer.
Of course, there are more retailers on the nice list than on the naughty list, but it literally pays to know what you are getting yourself into.
Be sure to keep credit risk in mind as well. Is the retailer a publicly traded company? Check their financials. If not publicly traded, ask experts in the industry about the retailer’s recent financial performance. Despite e-commerce’s relatively small share of the retail market, everyone knows that some retailers are in a tough spot financially as they lose out to Amazon and others. You would be very upset with yourself if you launched your brand at Circuit City and Good Guys at a certain point in history. Many companies did. Recently, many vendors were burned by the Toys R Us bankruptcy and Wynit closure.
In general, selling mass quantities of your products to retailers can be a very successful and profitable endeavor. It can be even more successful if you keep some of these simple cautions in mind. If your shipments are prepared correctly and you can prove they were prepared correctly, you are half way there. If you can also reconcile returns and know which retailers to be cautious of, you should be well on your way to successfully collecting money for all those hard-won sales you made to retailers.
We hope you have enjoyed this four-part series. We welcome your feedback and are always interested in hearing about other topics you would like more information. Please feel free to contact Rush Order any time.
* SOURCE: https://www.statista.com/