Trade accounts, discounts and quotes – Operational Procedures
When you offer a tradesperson better terms of trade you must never lose sight of your objectives.
Your objectives should be to use accounts, discounts and quotes as a tool to win new trade customers and to win more sales from existing trade customers AT A REASONABLE LEVEL OF PROFIT.
Tradespeople have the potential to shop very regularly and also to spend considerable amounts without requiring a lot of advice so they are worth looking after. They also tend to shop during our off peak periods, ie. during the week, earlier in the day and throughout the year. Generally they want the right product at the right price and prompt service. To achieve this you should adopt the procedures specified in the following sections.
Trade accounts
Accounts are an effective method of encouraging tradespeople to become regular customers, however, they do incorporate taking considerable risks and generate substantial costs in running accounts, particularly if they are not handled professionally.
These risks and costs can be reduced significantly if the following guidelines are followed.
Credit applications
Every account customer must have filled in a credit application form and the references checked out. Poor payers invariably have a similar record with other traders. Only managers can authorise credit accounts.
Credit limits
Credit limits must be set and monitored. Particular attention must be paid to new accounts and traditional slow payers. Credit limits should be reviewed periodically.
MANAGERS WILL BE HELD RESPONSIBLE IF THESE ACCOUNTS ARE NOT PAID SO MAKE SURE YOUR ACCOUNTS RECEIVABLE CLERK KEEPS YOU WELL BRIEFED. Make sure our accounts receivable clerk is following the procedures set out in the job description regarding the collection of overdue accounts.
When setting limits stick to the following guidelines.
(i) Government Departments, Public hospitals and Councils, $10,000 Limit.
(ii) Schools, $5,000 limit.
(iii) All other applications, including private schools and hospitals must be considered on their merits.
Considerations for the availability of credit and the limit are detailed on the credit application form but remember 80% of new businesses go broke in the first year of operation so keep the limit on customers starting new businesses to $1000 or less and interview the applicant to assess their ability.
(iv) All accounts other than (i) that exceed $5,000 must be approved by the Directors and CEO.
Purchase Orders
Remind staff regularly, at staff meetings as well as individually to always get purchase order numbers from larger organisations, schools and government departments. We have had difficulty in the past collecting for invoices where the purchase order has not been recorded.
Discounts for trade customers
The trade discount structure, ie. how much they get off what, must reflect your gross margin in that area and what labour and other costs we incur in selling the different product categories. Costs in selling to the trade are generally lower than to the retail customer. Tradespeople are in the field talking and hopefully promoting the nursery throughout their working week. Make sure the current discount list is displayed and labelled in the counter books and that it is up to date. Alterations to the standard discounts must be authorised by the directors.
A major source of complaints from our trade customers is that we do not give the discounts that we have promised. These complaints arise because staff just do not make the effort to add the discount. Take the time to teach staff how to calculate discounts, be patient and repeat lessons when necessary. Reprimand staff who are careless. You will need to spot check discounts on the till rolls and on the invoices.
The following guidelines should be followed if greater discounts are to be offered for substantial purchases:
(a) You can offer these additional discounts for products that we are quoting to supply or for products taken straight off the bench.
When working out the price take into account the difficulty in effecting the sale, as well as the total amount to be purchased, eg. collecting a $1000 of unusual plants and holding them for a month is going to be more difficult than organising a direct delivery or adding up $1000 of plants taken straight from the bench.
(b) PRICES. These general reductions in price can be offered.
More than $100 of plants, 25% off retail.
More than $1000 of plants, 33% off retail.
More than $500 of sprinkler systems, 33% off retail
Direct delivery from yard, 25% Mark from cost and cash in advance if not account customer.
More than $500 Sundries, 15 % off retail.
Always check our margins before discounting.
Do not offer additional discounts on cement or pavers at this stage.
At some stage we should consider giving greater discounts to customers who spend large amounts over a month.
Trade letter
The trade letter gives us a chance to entice trade customers down to the nursery. The products on the trade letter should be very competitively priced and be something that the tradie will really need.
Quoting
Objective of a quote
i. To win sales at a profitable price.
ii. To win long term customers.
iii. To reduce inclination of customer to look elsewhere.
Method of quoting
· Make all discounts very obvious.
· Make it very clear what the customer is getting (size, number, height if necessary); any confusion or dispute will cost us a long-term customer.
· Be polite and personalise quote, eg. thank you for asking us to give you a price on those plants, if you have any further inquiries, please ring me if any problems, possibly send accompanying letter.
· Always get price out as soon as is possible.
· Always retain copy of quotes, a duplicate copy book should be used for this purpose. make sure it is kept in an obvious spot for staff to refer to in your absence.
· You should be very specific with your quote, how many of what and how much of what, names addresses and phone numbers.
· Make it clear price variations can occur if there are long delays before pick-up.
· Ring and talk to the customer with potential, we are trying to build up a rapport with our bigger spending customers.
· Make payment terms clear and whether a deposit is required. A 10% deposit is required if we are going to have problems absorbing the products into stock. Make exception to this rule for good customers, eg. the Repatriation Hospital.
· We have limited space and plants can deteriorate rapidly so make it a condition of sale that the plants etc. are picked up as soon as they are collected and emphasise that they cannot be held on site until they need them.
· Take into account the high cost of delivering plants when preparing your quote ie. will they pick up themselves.
· Before ordering large quantities of products which we would have trouble absorbing into stock make sure Government and large organisations provide a purchase order number, smaller organisations should provide a signed order.
· Refer to the previous section on discounts to establish what prices you should be offering when you are asked to quote.
· Remember to take buying price into account. When large quantities are involved and you can buy at right price the reduction in selling price might win us a profitable sale.
** A SECTION MANAGER MUST AUTHORISE ALL QUOTES.