ASK THE EXPERT: The Special Order Question
“Should dealers require a deposit on special orders regardless of whether the customer has an account or not? What is the best policy regarding deposits and invoicing of special orders?”
Dear On Order,
Can you say bone pile?
I can’t remember a dealer round-table where the broad subject of special orders isn’t front and center. And for good reason! If your business is like most, special orders likely account for anywhere from 35% to 45% of your business. Manage special orders well and you are probably very profitable. Manage them poorly with an ever-expanding bone pile and your profits and then some are in the back of your warehouse instead of the bank or benefiting your employees.
This said, and noting all customers are not equal, based on what I have observed from a group of at least 50 independent dealers, I’d recommend the following:
1. For those customers who do not have an active account, deposits on special orders is a must. Customers need to understand that special orders aren’t likely to be re-sold to someone else. 40% to 50% paid up front, with a disclaimer on your invoices noting social orders are not refundable. If you order it, you bought it.
2. For those customers with open accounts, I would do two things:
A. Send out a personal mailing to each account, thanking them for their business and sharing the two new policy changes on special orders beyond $100. One, all special orders greater than $100 will require a customer-approved signature of this non-returnable merchandise. Secondly, all special orders will be invoiced to their account upon receiving.
B. Once special orders are received, it is imperative that they are invoiced immediately to the customer’s account. This will not only communicate to the customers their goods have been received, but also transfers the liability to the customer’s account, and off your books.
Be prepared for some discord, most likely from your sales team versus your customers. But in the end, your good customers will understand the necessary changes, your bottom line will improve, and while your bone pile won’t go away, it will get smaller.