Take the Hazards Out of Risky Orders

Aug 31, 2009

By Mark L. Venit, MBA, Contributing Writer

An Ohio contract embroiderer completed an order for 90 golf shirts — cotton lisle beauties, $38 at wholesale (you probably know the brand) — for a promotional products distributor. They are magnificent garments, but a bear to embroider. The design was digitized to run a thin underlay beneath a reduced stitch count (typical for this type work). You submitted a pre-production sew-out, on fabric, for the distributor’s approval —which was given. The customer did not provide the actual garment for the sew-out, and that proved to be the fatal flaw in the process of completing this order.

The entire job was rejected by the end-user — we’ll call her Jane Doe — who screamed about her “ruined garments.” In an out-of-court settlement between the parties, the embroiderer ate half the garment costs plus embroidery charges, and the distributor ate half the garment cost and her lost profits.

Who’s at fault? The contract customer who failed to provide a sample for the sew-out? The embroiderer for not anticipating the trouble? Both?

The blame could be laid on lack of experience on the part of the buyer and an assumption on the vendor’s part that working with high-end products would present no real challenge. Or perhaps was it customer’s fault for being too frugal to sacrifice one actual garment on the Alter of Prudence for the sew-out?

Then, again, was it the embroiderer’s liability for not asking for an actual garment for the sew-out test? Or should the embroiderer be taken to task for taking the job in the first place?

My take on it is that the process was flawed — failing to protect the embroiderer from a huge liability — and, in effect, immunizing the promotional products distributor from a screw-up. The contractor, Yvonne, suffered because her company didn’t have the right kind of policy guidelines, paperwork and procedures to back up her position.

Had Yvonne asked for a written waiver properly protecting her from liability, she wouldn’t be out two $2,000-plus and her hair would be considerably less grey this week. Had she required the distributor to furnish an actual product sample for the sew-out and approval, she’d be off the hook legally, could have delayed the order pending revision of the preparation work required, and/or could have passed on the order all together. Experience, as we all know, is a great teacher, but the money-down-the-tubes is nonetheless very steep tuition.

Professional embroiderers all set their own terms and conditions, which are provided to customers in writing, and must be acknowledged by the buyer's signature. Beyond whatever else an embroiderer’s contract might state about executing the customer’s instructions regarding size, colors, placement, shipping and other particulars, you might want to note the salient wording below that could have saved this embroiderer a lot of grief.

First, make sure you state the particulars of your approval policies. Then, include language like this: "Otherwise, there are no warranties expressed or implied, including the warrant of merchantability [which means salability]."

Secondly, state clearly who’s making the rules. In the above case, that would have gone a long way to precluding “misunderstandings” between buyer and provider.

The wording for such a policy reads: "In no event shall Your company/Seller be liable for consequential or special damages, including lost profits, whether or not caused by or resulting from Seller’s negligence. Seller’s liability in any circumstance shall be determined solely by Seller and limited to costs charged for production and other direct costs occasioned in conjunction with production of an order."

You’re welcome to use the policy text above as part of your terms and conditions, but, of course, you should check with your attorney before issuing any contracts to make sure your policies are in compliance with your state’s commercial codes and statutes.

While this column recounts an issue between a contract decorator and a promotional products distributor, the lessons learned apply to custom apparel decorators selling to end-users as well. Of course, with your own account, the loss if the order were to be rejected by the customer would essentially be the seller’s. That said, you might consider nonetheless implementing some internal policies to lessen the likelihood of eating a major job. Here are two recommendations:

Limit Liability Levels
Determine the level at which the potential risk of a disaster makes it prudent for you to protect yourself. Establish thresholds in dollars and units at which you won’t proceed with full production on that order without first getting a customer’s direct, signed approval of an actual garment sew-out. And make sure your staff knows the policy guidelines you’ve set.

Whether the threshold is a few hundred dollars or a few hundred garments, the stakes are such that you shouldn’t have to assume the entire risk involved with satisfying a customer whose quality standards might lay somewhere between unrealistic and impossible. The prerogative here is still yours even when a customer has waived the advantage of seeing a production proof.

Just because a customer gives you his complete trust and confidence and an a priori go-ahead doesn’t guarantee he’ll accept the finished goods or pay your invoice. If you haven’t lived through this nightmare scenario yet, ask any industry veteran for some input. What you’ll hear is, "Your time is a-comin’."

If your customer says run with the ball without seeing a production proof, the matter of liability — and eating the shirts — is still yours unless you’ve received a signed and well-documented approval. If this type of screw-up goes to court — whether a local, small claims jurisdiction or a higher court — you’d be stuck at a your-word-versus-your-customer’s-word impasse. In such cases, unless the judge is King Solomon himself, the ruling will likely be in your customer’s favor.

Insist on Tighter Credit Terms
Consider asking for prepayment-in-full on high-risk orders. If you absolutely cannot get prepayment from your account, insist on a substantial deposit (50% or more). Yes, while cardholders can ask their credit card company to withhold payment pending a complaint-related investigation. If the card has already been charged, it’s uncommon for the card company to find an honorable vendor (you) at fault in a your-word-versus-their-word situation. And if the deposit was by check, and that check has been cleared, then the funds are in your court.

Whether your deposit comes in the form of a credit card or a check, your bargaining position is greatly enhanced by the fact that your customer has something substantial at risk as well.

One final note is this piece of advice: “What the Bold Print giveth, the Fine Print taketh away.”

Mark L. Venit, MBA, president of Apparel Graphics Institute, Ltd., provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. Author of several books and nearly 400 articles on management and marketing, he also serves as chairman of the board of ShopWorks Software.

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