Let’s now consider the retailer if they had filed bankruptcy. In the second instance, where the product was on consignment, the outcome would probably have been the same. In the first instance the vendor actually may have had some additional liability for prior payments – please see an attorney if you need legal advice on your contracts and collections.
When negotiating “standard” terms some of the most important include: payment terms, return privileges, hold backs, back-ends, charge backs, pass throughs and F.O.B. terms.
While most are familiar with the Net 60, 2/5 type terms (60 day’s for payment from invoice or shipment, 2% discount if paid within 5 days), in multi-level distribution and retail channels the payment terms may be triggered with a final sale at the retailers level, and advertisement, TV airing or other trigger. Thus the manufacturer may not actually see payment for an extended period of the 60 days, plus the period between the manufacturer and the sale off of the shelf, plus potentially a “cycle” period. The cycle period is the time accrued between payment cycles if the distributor or retailer only makes payments once per month, twice per month or weekly. It is not uncommon for manufacturers to carry the product for 120 days.
Even when the payment is made, there may be “hold backs” or warranty and returns reserves which may be held 90 days or so from the trigger date. Some contracts have a flat allowance for returns and warranty claims.
Charge backs, back-ends, and pass-throughs could be MDF (Market Development Fund) accruals, additional margin concessions to retailers for sales made, the reconciliation of payment for marketing programs (say the cost of a retailers end cap for a month), or administrative fees.
Freight terms (F.O.B.) identify when the title and/or responsibility for the product in transit transfers to the second party.
In reviewing this and my last blog “Choose your early resellers carefully; they could be your last” it’s obvious that there are contract and practical interpretations of agreement terms, but the most important issue is SELLING THE PRODUCT THROUGH THE CHANNEL NOT JUST INTO THE CHANNEL.
“Using contract call centers for lead generation, sales, customer service and support, and disaster planning.”
“Small product and packaging changes can open new market opportunities with little additional cost.”
“Inventory from Raw Materials through the sales channel.”