Yes, times are tough. And yes, a lot of businesses are up against a wall financially. And yes, there are a lot of vendors getting “declines” when they run credit cards for ready-to-ship orders. But wait a minute…. How did retailers get themselves into this dysfunctional “pay up front” system, eradicating N30 terms, erasing any possibility of pulling revenue out of the product before the bills are due?
They didn’t. This one began on the vendor side.
15 years ago:
N30 is the traditional term of payment, by check. Don’t have a credit sheet that justifies terms? Send in a check for pre-payment; after proving yourself on a few subsequent orders, be moved to N15 or N30 status, giving you time to sell some of that product to cover the invoice.
10 years ago:
A few vendors begin to offer credit card payment as an additional option for accounts on N30 terms. A few retailers go that route, mostly for hotel and airline points. When day 30 rolls around, the store and vendor speak to authorize use of the card. Retailers know what’s going on the card, how much, and when. If there’s a problem with the order (mis-ships, damages, etc.), it gets straightened out before the payment is agreed upon.
8 years ago:
A small handful of vendors attempt to add 3% transaction fees to all invoices paid by credit card. Retailers scream “foul,” understanding that such fees are operating expenses, not penalties for immediate cash in the bank. Within a year or so, most (all?) vendors trying this drop the practice.
5 years ago:
Vendors begin keeping credit cards on file for open use without case-by-case authorization. Retailers find out about charges after the fact, which means having to haggle to get refunds for mis-ships, early ships, damaged goods, etc., tying up their credit card account balances, sometimes for months.
3 years ago:
Vendors begin requiring credit card payment on opening orders. Even retailers with stellar credit sheets find themselves having to prepay things, losing the 30 day window to move new product before an invoice is due.
2 years ago:
Vendors begin insisting a card be kept on file or they won’t even open an account. Many reach further, charging invoices as orders ship-—not at 30 days-—turning every order into a pre-pay scenario (once reserved solely for accounts in poor standing), regardless of the store’s actual credit rating.
The end result? Vendors created a financial black hole when turning a preferred method of payment into a requirement, pulling cash flow control out of the hands of retailers.
Am I opposed to credit card payments? Of course not. They offer terrific options and immediate fund movement when used responsibly. They help build credit ratings. They amass valuable loyalty points that offset the cost of market trips.
That said, it’s no secret I’m not a fan of vendors keeping credit card numbers on file. Didn’t allow it with my own store, and don’t suggest it to clients (truth be told, I lecture on the litany of reasons they shouldn’t). A retailer allowing a vendor to use their card without case-by-case permission is the equivalent of turning a blind eye while someone reaches into your wallet, uses your card, then puts it back without telling you until after the fact.
Did you order the product? Yes. Do you expect to pay for the product? Of course.
Did you also expect the charge to be accurate? To run when you expect it to? Absolutely. But sadly, that’s not always the case when someone charges something to your account without your knowledge.
I recently addressed this problem in my column in Gifts and Dec (read “Managed Expectations” on giftsanddec.com). The point of the piece was to help retailers become better partners with their vendors, but that road runs two ways. Vendors need to accept the fact that until they return more credit card control to the people whose names are actually printed on the cards, no one is going to win.
All it takes is one vendor to ship an order early, mis-ship product, or otherwise mess up and order, then charge their mistake to a retailer’s credit card to completely derail a store’s cash flow. At least a half dozen store owners I know of personally have spent months-—months-—trying to get vendors to refund overcharges and inaccurate billings. One of them is out more than $1,000, which we all know is a crisis waiting to happen (needless to say, my advice is those scenarios is to file formal disputes with the credit card issuer at the 30 day point, resulting in additional fees charged to the vendor).
True accuracy in billing and payment-—including product, timing, and accuracy-—can only occur with cooperation and transparency. If vendors insist on having a store’s credit card number, they need to be held accountable by the retailer, who has every right to set the rules about use of that card. Will this add hassle to the vendor side? Probably.
But the end result will be an accurate exchange of funds for both ends of the transaction. Shouldn’t that be the goal to begin with?
Click here to tell me what you think....
When we started our business, we offered terms to most stores with good credit sheets. But, what you don’t address above is why so many vendors have shifted to credit card only–it is because N15 or N30 is often Net Whenever They Feel Like It. We and many vendors I know have spent hours, months, entire days chasing down unpaid invoices. We have vendors, too, and they often require pre-payment from us, so we cannot afford to float a store’s invoice indefinitely. If you took a survey of vendors, you’d probably find that they’ve switched to credit card only because the majority (and I stress the word majority) of their N30 invoices were being paid at N60, 90 or 120 or worse. When we made the switch to requiring payment by credit card, we initially waited 30 days post shipment to charge the retailer. What happened then was that the credit card would often times decline, and we’d be back to chasing, calling and faxing for money on product we’d already shipped. For retailers who always pay on time, or whose credit cards never decline, we do try to be flexible and give terms or a little float time before we charge their cards, but I think you’re assuming too much by assuming that this type of retailer is the norm, and are being wholly unfair to vendors in the process. How about suggesting a solution that works for both sides?