As if your life couldn't become more complicated and doing business weren't difficult enough, the world is in crisis and your bottom line is in serious jeopardy. Many garment decorators will be stuck with fulfilled orders that clients no longer want (Like shirts for next week's marathon that got canceled) and you might not have a clear path to payment. How can you protect yourself in the future?
In any business where custom goods are involved, no company should have an 'order form.' You need a contract - or since it seems less intimidating - a purchase agreement. Semantics? Not really. When you take an order, the eyes of the law are apt to view the transaction the way it views a sale at any other store - as something cancelable, returnable or resalable. A purchase agreement, on the other hand indicates that both parties have responsibilities and obligations to each other.
Here is the tricky part. Just like any other article you will ever read, I have to state that I am not a lawyer, this doesn't constitute legal advice and that you should seek professional help (lawyer - not psychologist) before making a purchase agreement. There are several reasons for stating this: Firstly, every situation is different. Secondly, the law as to what you can demand and proper language to use varies from state to state. But seeking legal help is worthwhile. If you make up a purchase agreement and ask a lawyer to review it, you might pay as little as $50-$100. The cost of a disputed order is much more expensive.
This term is French for something like 'greater force' (I don't speak French) and it refers to those 'acts of God' clauses in a contract. They usually start out with something like: "In the event that any outside cause, such as war, fire, epidemic, strike or other emergency prevents..." and then it outlines remedies. Your purchase order needs to outline circumstances under which each party can cancel, damages (don't use the word penalty - but that's another topic.) and partial performance.
Firstly, your force majeure clause needs to dictate that if you manage to complete an order - having no reason to foresee a reason not to complete it - the client is responsible to pay. Here is the intent: You completed shirts last month for a marathon next month, the client hasn't picked them up yet, and suddenly the world goes on lockdown. This shouldn't be your risk, the client should be required to pay. However - if you took an order two months ago for a marathon next week, and you are just now ordering the shirts while the world is becoming a ghost town, you have an obligation to contact the client to see if you should proceed to prevent the damage that executing this order will likely cause. The language should suggest that in event of cancellation for cause the client is responsible only for work performed up to that point.
Secondly, your force majeure clause needs to dictate acceptable cancellation in the event that the unthinkable happens to you. For example, what happens if your building is destroyed by fire. Obviously, you can't complete an order at that point. My suggested language would be that in such case, you will return any money paid by the customer and that will be the end of the agreement.
Limits of Liability
Like the Force Majeure clause - but separate from it - you need a clause that limits your liability. Common practice usually states that: no legal remedy (for client) may exceed the value of monies paid by the client. In practice - if you took an order that absolutely must be delivered by tomorrow, and you absolutely can't get the shirts anywhere, the client gets back all money paid. The client can't sue you for millions because you ruined his event.
Your purchase agreement needs to express when you are to be paid. Most custom garment decorators who take orders that won't be filled while the customer waits traditionally ask for "50% down, balance on delivery." That's actually bad language because it allows the customer to dictate when you get your final payment. In the case of a cancelled event, your client might be quite happy to leave the shirts with you forever so as not to have to pay the balance. More properly, this should be stated as '50% deposit to begin work, balance due upon completion'. During the 25+ years I was an embroiderer / printer, almost all business was paid by checks and cash. In this day of credit cards, you might be able to state that if not picked up/paid within a week of completion, the client agrees to having their card charged for the balance. Check with a local law professional to see if this will fly in your area.
Of course, full payment up front is always best - if you can get it. Consider offering credit terms very carefully. Credit billing has always scared me, and of the small number of clients I ever granted credit terms to, almost 1/3 of them eventually ran into some form of difficulty and stiffed me on some final order.
A bailment is a legal term that roughly translates to 'you have something that belongs to somebody else and you are responsible for it's safekeeping.' If your neighbor leaves his basketball in your yard and it blows away in the wind, never to be seen again - you are not responsible. No bailment was created. But in a purchase situation, a bailment of some sort is inevitable, so define its terms. Most agreements simply state that you are 'not responsible for goods left more than 30 days from completion.'
As mentioned, I serviced decorated apparel clients in my own chain of stores for more than 25 years. I had a small list of advice for my employees reference. One point was: "Skip dates on shirts." If a client was ordering shirts that had a date on them, I told employees to ask the customer if they felt the dates were necessary. If an event shirt didn't have a date and there were shirts left over, they might be sold next year. If an event got postponed, a shirt saying: "Big Marathon - 2020" was a much better purchase than a shirt saying: "Big Marathon, March 18, 2020"
A final Thought
These are going to be trying times, and we need to protect ourselves financially as well as physically. It's not time to become an ogre and try to force blood from your clients who are enduring hardships of their own, but you need to create reasonable terms for transacting business if you haven't done so already. Be fair and try to see your business dealings from both sides. As one Canadian actor I'm a fan of keeps telling us: "We're all in this together, I'm pullin' for ya." So "keep your stick on the ice."
What have you experienced? What can you add? I'd love to see your comments below!
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