To me, the most exciting part of creating and producing your own product is seeing the finished merchandise. For years almost, I had dreamed of my product and then to see it transformed into a tangible item before my eyes was very, very exciting.

Up until this point, I had cultivated a list of potential manufacturers, culled a list of suppliers I had wanted to use, worked on my branding and defined my customer message.  Now I just needed to produce some products.

In dealing with suppliers I had located online, I knew I had to carefully set out a list of agreements that we both needed to abide by. I did not want to have any misunderstandings, and especially since we had to deal with language barriers and social customs, I wanted everything spelled out as clearly as possible. As we gave our first purchase order (or PO for short), we had to list the items we wanted to order as well as the terms of our agreement.

Purchase Orders

A typical purchase order will list the item you want to order from them, the units, the colors and the agreed upon purchase price. If the factory has created an original product for you, it is very helpful that you approve the product and then refer to it on your PO. For instance, Style #5501 approved sample on 2/1/11. Sometimes the factories even request that you send the sample back to them so they can refer to it during production.

It is imperative that you are clear about the delivery dates you are requesting.  This is something that normally the factory will spell out to you when you start working together. They sometimes will say “Production lead time 50 days after 50% deposit and sample confirmation” or something to that effect. It is important to note that normally the order is confirmed once they send you a copy of their invoice and they notify you that they have received your deposit at their bank. It is not considered confirmed until after that happens. I am pointing this out because when and if your production time runs late and you try to pinpoint the delay, it will sometimes go back to the discussion of when the order is confirmed.

It goes without saying – keep a strong paper trail.

Payment Terms

id="more-4773">A normal deposit to be paid to a factory for them to begin production is 30%. I have seen it as high as 50%.  In my industry, fashion, it would be a 30% deposit and 70% remainder to be paid before the goods are shipped.

Get An Inspection!

Generally, the factory is paid once the goods are finished but before the goods leave their factory.  A factory will not release the goods to you if they have not been paid.  It is precarious to work with a new factory, not have a history with them and send them a large sum of money. We were always worried that a new factory would fill a container full of rocks and send it to us in the US.

In our early days, my partner and I would always travel to the factory when the goods were supposed to be finished. We would inspect the goods ourselves to make sure they had the proper tagging, were wrapped in the correct polybags, which were then labeled with the style numbers, and then check that the carton markings were correct. I would randomly take a packing list and go through the boxes to make sure the quantities were correct.

If anything was done incorrectly, I would have it reworked or completely redone. I would always plan to spend several days at the factory if need be.

After doing that for a couple of years, my partner and I started using third-party inspection companies such as Asia Inspection or STR, and we would have them do factory inspections for us. We would ask them to do an inline inspection, which is where they check the production mid-way and report to us with detailed photos and descriptions of how the product looked.  Then we would also have them do a final inspection, which they carried out when the goods were finished and packed in their cartons, but they were not sealed yet.

These inspection reports were very meticulous – sometimes 30 pages or more and listed details down to how many stitches were on each side seam and included close-up pictures of the handbags, cartons and even pictures of the managers at the factory. These reports were several hundred dollars and well worth the cost, which was much cheaper than us going to Asia.

Before We Shipped

We would always require that our goods pass inspection before they were shipped to us, and we would state that on our PO by specifying, “If the goods do not pass inspection, charm and luck reserves the right to refuse the shipment.”

On the PO, you should very clearly spell out the shipping instructions such as “Must be loaded on the boat in HK (Hong Kong) 3/1/11.”  Furthermore, if you start to work with Letters of Credits (L/C’s for short), a factory will generally not get paid until the documents (which state the goods are on the ship or loaded onto the airplane) are submitted to the issuing bank.

Invoice

An invoice states how many units were actually produced and it will reflect the deposit. It may also say when the goods have shipped or are planning to ship.  Invoices can be used for customs purposes, can be sent to the bank if a letter of credit is involved and are used for internal accounting. Sometimes in international transactions, an invoice is called a pro-forma invoice.

Pack List

The other document which is an absolute necessity is a pack list, which clearly itemizes how many total units are being shipped and which colors and styles are packed in which carton.  A pack list also has the dimensions of your cartons, so a freight forwarder can figure out the CBM of the shipment. CBM stands for cubic meters and it helps in determining the shipment space you need.  Basically, any person who works in the warehouse or who has never seen your product should be able to look at a pack list and figure out which product is in which carton. Pack lists should be very straightforward and easy to read.

A pack list is mandatory when shipping because it not only denotes where the items are located, but it gives the freight forwarder an idea of how much space you will need.

When dealing with your first orders and shipping, read everything very carefully. If you do not understand the terms, ask.  In fact, I would go over the first order with the  factory very carefully regardless of whether you THINK you understand the terms.  It is better to answer any questions before production starts than after the fact.

I also urge new companies who are starting production to run their contracts and purchase orders through a colleague or consultant who has experience in their field.  A lot of money is at stake. Take the time to make sure all your bases are covered.

Christine Syquia

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