When should retailers expect to settle up? The goods help determine the terms suppliers set, but so does customer loyalty.
With the diamond and jewelry industry relying heavily on sending and receiving goods on memo, understanding the different payment options is critical. Terms can change depending not only on how long the goods are on loan, but also the relationship a retailer has with the supplier.
A per-client basis
“Short-term consignment is the fabric of the diamond business,” says Andrew Rickard, vice president
of operations at wholesaler RDI Diamonds in Rochester, New York. “Our typical terms for a singular short term memo are net 30 [full payment within 30 days], but depending on the volume and the client, we sometimes extend to 30 or 60 [days], or 30-60-90.”
In the largely unstandardized memo industry, terms tend to be flexible. “We don’t have set guidelines for memo stones. We determine our terms on a per-client basis,” points out Eric Mor, president of New York wholesaler Abe Mor Diamond Cutters.
Still, there are some common practices. “Obviously, the more expensive the stone, the quicker we expect a response,” he explains. “If a stone is more than $15,000 or $20,000, we usually ask when it will be shown. And we expect to get paid when our client gets paid. Sometimes it could be 10 days, or if it is a custom design, it might be 30 days.”
Rickard concurs: “The client doesn’t have any money invested in the stone, so if they get paid, so should I.”
Willing to take a chance
Loyalty is another consideration that factors into setting memo terms, with repeat customers likely to get more leeway. “The more loyal the client, the more likely we are to leave the stones for three months or even up to a year,” says Mor. “Our logic is that instead of sitting in our safe, the diamonds are getting exposure [through] our customers. We can always drop-ship to another customer who might need that diamond, and we are still able to reward our loyal customers at the same time.”
Of course, wholesalers need to take precautions to mitigate their risk. “Before we do anything, we establish a credit relationship,” Rickard points out. Wholesalers can file a Uniform Commercial Code (UCC 1) statement, a legal document that offers them protection in the event the client files for bankruptcy.
However, while both Rickard and Mor recognize the benefits of the UCC-1, they only use it for large accounts with substantial volume. “We have to be doing more than $200,000 with the client,” notes Mor.
Many wholesalers grumble about having to shoulder the majority of the risk when it comes to memo transactions. However, the practice is now so embedded in the trade, it is unlikely that retailers will see it tighten or disappear any time soon.
“Memo is just the way things are done in this industry,” says Rickard. “I don’t see it going anywhere.”
‘Reputation and a handshake’
For retailers, then, the key to maximizing the benefits of memo will continue to be about developing and sustaining an ongoing partnership with wholesalers. “The suppliers I deal with are very flexible,” says Al Louis, owner of Designing Jewelers in La Crosse, Wisconsin. “I tell them what I need, we discuss prices, and they send it to me. The memo could be three days to two weeks to open terms [that can last
30 days or more].”
However, he notes that terms are shorter during the holiday season because “everyone’s inventory is moving around.” Establishing a relationship with a supplier also helps jewelers in negotiating extended terms for special circumstances. In some cases, the jeweler may offer its customer a layaway plan, in which case payment may be delayed.
“It is a big deal for diamond merchants to get this support from our suppliers,” says Runyan. “People from other industries are incredulous when I tell them that I can get $200,000 worth of goods on reputation and a handshake. Only in the diamond industry.”