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Food for thought (&profit!)

Discussion in 'Picture Framing Business Issues' started by Ron's dog's flea's brain on acid, Apr 28, 2000.

  1. Ron's dog's flea's brain on acid

    Ron's dog's flea's brain on acid MGF, Master Grumble Framer

    While attending a recent trade show, I met a "successful" gallery/frame shop owner, and we had lunch together and compared notes. He was definitely a bragadoccio-type personality, but had been in business for a long time and claimed his gross sales were "phenominal". As we talked over lunch, I began to silently question this guy's success. Finally, he managed to grate on the last bit of my nerves, and I could take no more. So I asked him the BIG QUESTION. The answer to which always separates the men from the boys.

    My question: "Do you pay your bills early to take advantage of your vendor discounts?"

    His answer: "**** no. It's not worth the time or hassle to keep up with that **** to save a measly 1-1/2 to 2 percent. I usually pay them in 40-50 days so as to not tie up my capital, and instead put it to good use for an extra 10-20 days."

    Right then and there I knew he wasn't nearly as smart or successful as he thought he was.

    The moral? It is ALWAYS advantageous to pay your bills in 10 to 20 days and receive the appropriate discounts from your vendors. THIS IS FREE MONEY FOLKS! Suppose this guy's vendors offer him terms of 2% 10 days / net 30. This means that if he pays in 10 days he will receive a 2% discount, and if it is not paid in 30 days, interest will be charged on the outstanding balance. So, in essence, what this guy has done by paying in, say, 45 days is this: He has "borrowed" money from his vendor for 15 days at probably 1-1/2% per month to not have to pay the bill on time. He has also forgone a discount of 2% of the amount of the invoice. But see, that discount is for a 1-month invoice and there are 12 months in a year - so by giving away that 2%, he is really giving away 24% over the course of the year! Add to that the 18% per year he is paying on the "borrowed" money, and this bro will be losing out on 42% per annum! One heck of a price to pay just to be able to act like a stud, doncha think?
    American Picture Frame Academy 1-888-840-9605

    The American Picture Framing Academy Learn Picture Framing Now
  2. MerpsMom

    MerpsMom <span style="color: red"><b><i>Charter Member</i><

    Max, you don't visit us often enough. You always post the business side, and it's always interesting. See ya again soon?
  3. Scarfinger

    Scarfinger Guest

    Even better: Have your suppliers ship COD and when the truck arrives check the invoice and write a check. Insist they give you the 2% of course. And at the end of the month no accounts payable to spend time on trying to find invoices etc. One of the efficiency rules for busy people is H.P.O. - Handle Paper Once!!
  4. Orton

    Orton CGF II, Certified Grumble Framer Level 2

    . . . for what it's worth, because I am physically away from the studio on a regular basis,and for varying lengths of time, I try to pay for the shipment when the goods are delivered. That way, the goods are paid for, I don't have to go back over over old ground thirty days later, and I take advantage of early-pay discounts. For the most part the system works well.

    [This message has been edited by Orton (edited 04-29-2000).]
  5. Mel

    Mel MGF, Master Grumble Framer

    What do you do when the shipment is defective, the company insists on sending a call tag and refuses to reimburse until the defective material has been received, takes two months to issue the call tag with the wrong invoice number on it, then miscalculates the reimbursement? I swear a lot. Because I dislike that $4 or-whatever-it-is COD cost, I never ship COD, and because of the above problem, I also refuse to pay for defective goods while awaiting a call tag. This problem makes me cranky thinking about it. Grumble, grumble.
  6. Scarfinger

    Scarfinger Guest

    The term is"Hard Nosed Businessperson" (oops! I almost said "Businessman". I write the check,if the shipment is defective I call the supplier and demand satisfaction with a completion date and if I'm not happy with the answers I put a stop payment on the check. In these monetary situations I make sure I am in control. And then I don't take **** from any company big or small. I regularly call my suppliers and tell them what they are doing well and what they are doing poorly. My suppliers are small local companies that I can talk to (even play golf or go to a convention with).I may pay a few cents extra but I get service. And service is what the framing business is all about. I also make this a 2 way deal and try to be the best customer to these suppliers that I can be and this means prompt, regular payment.
  7. ArtLady

    ArtLady SGF, Supreme Grumble Framer

    Stop payments are expensive $15.00 or more!!

    I cut the mat, I pet the cat.
  8. ArtLady

    ArtLady SGF, Supreme Grumble Framer

    We believe in managing our business which means:

    Cash Flow
    Turn Around

    These are all areas that need our attention. We believe the old fashion concept of accounts payable, pay according to terms. We respect ourselves and have the respect of our vendors.

    If we pay in time we can control quality and still take discounts. Sometimes this leaves us extra cash for other issues such as promotions etc.
    I cut the mat, I pet the cat.

    [This message has been edited by ArtLady (edited 04-30-2000).]
  9. Orton

    Orton CGF II, Certified Grumble Framer Level 2


    When returns, for any reason, are required, I issue a Credit P/O, fax it in, and return the goods with the next scheduled delivery. Every returned item carries its own piece of paper: that way it does not get lost. When the item is replqwaced or credited, I discard its tracking document. this does not happen often, and I seldom have to wait inappropriate amounts of time.
  10. Lance E

    Lance E Member

    Surely when you have damaged goods that are paid for the supplier does everything in their power to replace ASAP and keep you happy??!!
    We have a zero tolerance policy with our suppliers, if they let us down we drop their product, is this justified? In my opinion it certainly is, we rely upon them to do their job so we can do ours, if there is a weak link we have a dissatisfied customer who will only see us as the problem.
    Treat vendors well they will respond favourably. We pay accounts on the due date to make the most of discounts offered. Cannot pay C.O.D as most deliveries are by independant carriers.
  11. MerpsMom

    MerpsMom <span style="color: red"><b><i>Charter Member</i><

    Just a bit confused: (better not be a chronic condition). Paying COD charges seems a simple burning of money, so I don't. We do take advantage of any early-pay discounts, BUT we do a huge amount by VISA. I realize this eliminates some early pay discounts because the supplier pays something for offering me the convenience of the card. But, then I'm paid up: if there's a dispute beyond my ability to settle quickly, I don't pay the charge. There are no COD's, I pay off the card, of course, so I get the convenience of a bookkeeping record as well as knowing I owe noone. I still get quantity discounts and free shipping on many of our out-of-town suppliers. Works for me, but we all do what we must do, it seems.
  12. BUDDY

    BUDDY PFG, Picture Framing God

    MM; I agree that it seems futile to pay COD charges if your going to pay off the bill either by Cash,Check,Or card.In this area even if you suddenly discover you're short of something I can always go pick it up and save the fee.(LJ,Zinsel,aetna are all within 5 Miles of my shop)
    My question is ,when useing a card ,Which has interest fees ,Don't you at least use a card that accumilates frequent flyer miles? Someone told me they use the card but they also use the miles to at least help pay for plane fairs to framing shows .Has anyone tried this and does it pan out or does it take so long to accrue enough miles that it 's impractical?
  13. MerpsMom

    MerpsMom <span style="color: red"><b><i>Charter Member</i><

    Yes, I'd love to have airline miles. It's simple laziness not to have done it by now. I know people who buy $55,000 cars with charge cards. (Several questions arise from that: which card, and why waste that kind of good money on a stupid car? Whoops: my bias is showing.) They put college tuition on them, and anything else they can think of: totally cashless. That may be why the airlines are smarter about the numbers of miles it takes to get a ticket! Nonetheless, if anyone knows of one, I'd sure like to hear about it.
  14. Scarfinger

    Scarfinger Guest

    I don't pay COD charges as the deliveries are by suppliers trucks. And a 15.00 stop payment charge can be worthwhile to let a supplier know I mean business and it doesn't happen often.

    [This message has been edited by Scarfinger (edited 05-01-2000).]
  15. JPete

    JPete <span style="color: red"><b><i>Charter Member</i><

    I've had customers using the card to help buy a car. Those are the people with the money but guess that's why they have it. They take advantage of everything.

    We had a Citibank Ford card...think thats what it was called. It had these pts accumulated forever but I'm not one to buy the junk they offer, however when our daughter graduated college and went to buy a new ford we were able to covert those 325 credits into $325 for her car.

    I prefer to write my checks and have managed to keep my credit going. When ordering from someone new I'll do the cod just for convience and to speed things up. They say with UPS you gain two weeks of non-payment because it takes that long for them to process the check! To each his own. [​IMG] have a good week.

    When I have bad merchandise I get a replacement at no charge generally pdq. Thats what loyalty and a good credit history does for you.

    [This message has been edited by JPete (edited 05-01-2000).]
  16. Mel

    Mel MGF, Master Grumble Framer

    JPete: I have an impeccable credit history, I always take the early discount, and I am very loyal, but we are talking about Studio Moulding here, again. Unlike Orton, I can't send back with the next shipment, because everything I order comes UPS. (Speaking of UPS, have you ever had them loose information on a COD? I have--but that's another nightmare.) Most recently, I was billed a late fee by Studio because they had waited 5 weeks (better than the earlier 2 months), then issued the call tag. As I had made clear to them, I would never again pay for defective moulding anticipating an eventual refund. (That's another long story I won't repeat.) So the late fee showed up, I've written a letter explaining it allm no answer back to date. It isn't much, but it is the principal.

    The obvious question: Why put up with them? They have a line of simple, good looking mouldings that just fit the bill with lower-end jobs. Another round like this, and they're goners, but I think I may have found the magic formula. As was advised by others, always demand that the materials be defect free, that no flaws will be accepted. I stipuated that requirement on my last order, and it arrived perfect. So, one more chance.

    JPete, your last post was not meant to be taken personally, I know, but like I said, this makes me cranky.
  17. James Miller

    James Miller Guest

    You're absolutely right about the accumulated savings of prompt-pay discounts.

    COD's can work the same way, but maybe not in every case. For example, if the purchase is small, the COD charges could exceed the discount. Also, the purchaser has to either get the order's total in advance & pre-write the check (which might require an extra phone call or two), or drop whatever he/she is doing to complete the transaction on the spot when it arrives. And then there's the matter of keeping track when something goes wrong.

    We have found twice-a-week check-writing is best for us. We do not accept COD shipments (except on very rare occasions), but we earn prompt-pay discounts all the time.

    If you like COD shipments, don't assume that you are getting the prompt-pay discount. Some suppliers will not allow it for CODs. That may be because CODs are often associated with one-time or infrequent customers, or customers with poor payment history who have been cut off. For frequent COD customers who simply prefer that method of paying, the discount might be allowed, but you might have to ask for it.

    Here, we don't do COD shipments. We have found it better to pay bills at designated times, rather than to interrupt work flow to cut checks. And we get to keep our money a little longer.

    Not only does prompt payment bring more $$$ to the bottom line, but it also cultivates the most cooperative kind of relationship with suppliers. Distribution is a capital-intensive kind of business. Anything a distributor can do to reduce "receivable days outstanding" works big for them. Our prompt payments do that, and they love us for it.

    Max, in your original post, waaaaay up there at the top of this string, you indicate that Mr. Successful was very proud of his gross sales.

    What did he have to say about his *profit*? If he focuses on sales and not profit, then he may be headed for trouble. Too many small business owners get excited about gross revenue and forget that it's profit -- not revenue -- that pays the bills.

    Jim Miller,holder of CPFcm designation; FACTS/GAFP Committee Member
  18. Rick Granick

    Rick Granick SPFG, Supreme Picture Framing God

    I look at the due date for receiving the prompt-pay discount, and write the date which is two business days before that (this is my "pay date") on the outside of the bill's envelope. This goes into the envelope-holder on my desk. Until the pay date, any subsequent bills from that supplier go into the same envelope.
    On the pay date, I pay all of the bills in the envelope, even if they just arrived the day before. This way, I get all my discounts while writing the fewest number of checks.
    Next bill from that supplier starts a new batch, which gets filed at the back of the holder. Batches come to the front as their pay dates approach. This way, the next upcoming pay date is always visible.
    This simple batching and rotation system gets the job done for me. Note: The two-day-early indication is to provide a bit of leeway in case I'm too busy to write checks on a given day.
  19. ArtLady

    ArtLady SGF, Supreme Grumble Framer

    We use Quick Books. It makes managing all facets of the business easy. I know with a couple of key strokes what I owe, who I owe, cash requirements, profit/loss, balance sheets, inventory (artwork only), payroll, and percentages for Cost of Goods Sold. It does my 941's. We also have a software package that is framing specific. We take the invoices from the framing package and put them in Quick Books.

    Accounts payable are paid by the due dates we set up, the checks are printed by computer. The bills are held in an alphabetical tickler file.

    All deposits are made in Quick Books so cash balances are always available.

    Note: There are always people out there who are legends in their own minds.
    I cut the mat, I pet the cat.

    [This message has been edited by ArtLady (edited 05-01-2000).]
  20. ArtLady

    ArtLady SGF, Supreme Grumble Framer

    Dear MAX,

    My remark about some people being legends in their own minds was meant for the gentleman you refered to at the beginning of this thread.

    My apologies if anyone took this remark in any other context.

    My best to all.

    I cut the mat, I pet the cat.

    [This message has been edited by ArtLady (edited 05-02-2000).]
  21. Mel

    Mel MGF, Master Grumble Framer

    James and JPete: I think the lack of loyalty on the part of my above-mentioned supplier probably relates to the fact that I am very small potatoes. Not meant to be sour grapes, just a fact. The return loyalty will have to become commensurate, I guess. One more chance, though......
  22. JPete

    JPete <span style="color: red"><b><i>Charter Member</i><

    Oh Mel, I've been there too. Is low end really worth the frustration? The old saying wisdom comes with age is really just mellowing out.
  23. Le

    Le CGF II, Certified Grumble Framer Level 2

    Since this has turned into paydates and bum merchandise I received a shipment COD from Roma. UPS lost my check and told Roma I never wrote one. UPS had to pay Roma. UPS asked me if the check cleared. After a month I sent Roma another check. They cashed my check but lost their record of it. UPS was calling me and so was Roma. I told them to fix it themselves. They sit on their ass and expect me to do their work for them.
    AL I'd like to know more about the way you have your books set up.
  24. Mel

    Mel MGF, Master Grumble Framer

    Le: Big empathies coming your way. I ended up eating it, but it was only a tiny amount. Although usually compulsive about getting such stuff straight (just to make life mutually miserable for those messing up to try to head off worsening of the problem), I used JPete's reasoning: Is it really worth the frustration?

    JPete: After recently adding Roma to my wall, and watching customers I expected to want Studio eat them up, I'm learning.

    Anyway, what was the subject?
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