How to Get Paid in the Leathercraft Business

When I started my leathercraft business, I really didn’t have a “Store Policy” on custom orders.  At that time we were dealing with mostly local folks and I was pretty trusting of them.

Customers came into the store and wanted to get a belt made.  I spent 30 minutes or so with them designing their belt.  The question that followed was usually, “Do I pay now or when I pick it up?”

At the time, I was hungry for work and wanted to make a good impression on our new customer.  I would reply with, “You can pay for it when you pick it up.”

This worked out well for the most part… For a while.

Eventually the items waiting for “pick up” began to grow and money tied up in finished products began increase.  I soon realized that I had built many items using shop money that might not ever get picked up and paid for.

We then started taking a deposit of 50% of the job.  This worked well to ensure that the customer would be back in the store to pick up their items.  As well as to pay us the rest of the balance.

But this became somewhat difficult to handle from an accounting standpoint.

Over the years I have developed our store policy on custom orders into what works best for us.  We take all the money up front on all custom orders.

Getting Paid at the End of a Job

I have a taxidermist friend of mine that likes to get paid at the end of a job.  He doesn’t take any kind of deposit.  You drop your deer off and he pays for the tanning of the cape and then 6 months or so later you get a call from him that your deer is ready.  That is when he gets all of his money.

With this method, he doesn’t have to feel any guilt if he runs late on getting a deer mount done in a certain time frame.  He gets a big payment when the customer comes to pick up.  And once the money comes in then that transaction is completely done.

I like this approach a lot.  From an accounting standpoint, this makes things very easy.  Product out and revenue in… all on the same day.  Much easier to handle.

The only thing that is risky in a leathercraft business, is that the majority of our stuff is personalized in some manner.  It may have initials on it, be a certain size for that customer, or have their brand on it.

If the customer decides that they don’t want what we have made after all or runs into financial trouble, then we are stuck with an item we have made that we can’t sell to get our money.

When it comes to deer mounts, I don’t imagine many people would leave behind something like that.  But if they did, he could sell it to someone else that doesn’t mind a deer they didn’t kill on their wall.

I normally use this method for the saddle repair side of the leathercraft business.  When a customer drops off a saddle for repair, we assess the saddle and its value.  As long as the repair isn’t more than the saddle is worth, then I will take payment at the end.  This way, if they don’t pick it up within 90 days or so, I can sell their saddle to recoup my costs.

But on the custom side of the shop, I do not recommend this approach.  Personalized items are virtually impossible to sell to someone else if they aren’t picked up.  This can lead to a large amount of your time and money tied up in finished works that will collect dust waiting to be picked up and paid for.

I once did an accounts receivables audit in our shop when were having trouble with things getting picked up.  At this time, I had many repair saddles, custom belts, custom tack and many other items that were piled up at the front counter.  I totaled all of these finished jobs up and found out that we had $9,000 total sitting there.  

This was the end of us letting customers pay for their items when they pick them up.  We had to make a change.

Taking a Deposit on All Work

Our solution was to start taking deposits on all the jobs that came into the shop.  This included repair work.

This worked really well for a while.  We would quote the job in the beginning and then the customer would pay us 50% of that to confirm the order.  Only after this was paid did we start the job.  If the customer couldn’t pay the deposit on that day, then the job was in leathercraft business “purgatory” until they sent a check or came buy to pay us the deposit.  

I thought this would fix our “pick up” problem.  No one would leave an item that they paid half down on.  I was wrong.

We still had just about as many customers waiting weeks if not months until they came by to pick up their repair or product.  And since we only got half of the money when they ordered it, we still were not making any profit on these jobs.  The deposit basically covered some or most of the labor as well as the material cost.  We were breaking even on these jobs.

Another problem that I didn’t think about was that it was difficult to track profits from an accounting standpoint.  It usually worked out that you took the deposit in one month (revenue in and no product produced or sold) and then the balance the next month (all cost to produce the product and only half revenue in).  So on the individual job the profit was good, but the numbers for the month itself were usually thrown off because of this.

Not to mention that we had to put a system in place to keep track of how much each customer had paid on each job.  This was a bit of a pain.  I was not a fan.

Full payment up Front

After years of trial and error, I finally settled on the policy of taking full payment up front.  But even that took some adjustments to get it where it works best for us.

When we first started doing this, I feared that customers would balk at the thought of paying 100% of the job before we even started.  They didn’t care.  Oh sure we had the occasional person who would pass and not feel comfortable doing that, but we held our ground and passed on the relationship.

I feel like if they don’t want to pay you when they order it, or don’t have the money at that time, then they won’t pay you at the end or won’t have the money then either.

This method worked out really well for us.  But then the orders started to pile up and we soon realized that we had taken payment on a substantial amount of jobs that would take us months to finish.  We were now on the other end of the extreme… the leathercraft business now owed our customers thousands of dollars of product.  Our custom job “assets” turned into a “liability” from an accounting perspective.

I didn’t like that feeling.  What if I got sick and couldn’t work for a week?  What if I ran out of material?  What if the customer got tired of waiting and wanted a refund?  Or worse, what if I died?

This was a slippery slope that I didn’t enjoy being on.

My solution was to first get caught up.  In order to do that we began to take orders as usual, but we told the new customers that we would call them before we started the job to collect the full payment.  We explained that we were behind and needed to get caught up first.  They were all understanding of this and it worked great.

From this experience came the policy that we use today on all of our custom jobs.

Our Leathercraft Business Policy Today

I handle my custom orders today in a much more nuanced way.  If your shop is anything like mine, you probably have months where orders coming in are very few and far between.  But then other months where you spend most of your day on the phone or with customers designing their projects for an order.

I try to keep no more “confirmed” jobs in the queue than I can finish in 4-5 weeks.  This helps to keep my revenue and the expenses associated with them in the same calendar month.

A “confirmed” job is an order that has all the details that I need to create the item, as well as being paid for 100%.

Depending on the month and number of jobs in the queue already, I will take new orders and confirm them with full payment.  If I have orders still coming in above that 4-5 week schedule, then I will let the customer know that it will be a month before I can start the job and that I will contact them at that time to confirm the job with payment.

This seems to work the best for my customers.  If I am scheduled further than 4-5 weeks out then they are aware of that and I don’t have their money that whole time while they are waiting.  This keeps us both at ease… I don’t feel guilty for taking so long and they don’t feel the need to call checking on their product every week (though some still do).

For my repair saddles, I take payment at the end on them as I always have.  But again, I just have to make sure the saddle is worth more than the repairs in case they don’t pick it up.  But this works better for us since many times I don’t know exactly what it is going to cost so we just do it at the end.

On my custom saddles I do them on a case by case basis.  I do not charge a deposit to get on my list.  This may change at some point, but for now it works best for me.  The majority of my customers are return saddle customers and we have a relationship with them.

I find out the tree that they want and then get that ordered at the appropriate time for my schedule.  The tree can take 3 – 6 months to get, so taking a deposit is frustrating for me.  Once the tree is in the shop and if it’s a customer that I don’t have a relationship with, then I will get a deposit at that time.  But I prefer to get all of the money at the end on an average saddle that I can sell if they back out.

This seems counterintuitive when you compare this policy with my custom job policy we talk about earlier.  But for me this works better for my saddle schedule.  Saddles are their own animal when it comes to building them on a schedule.  The first step in starting one, ordering the tree, is out of my control.  I am at the mercy of the tree maker to make the tree and send it to me on his schedule.  Then when the tree gets in the shop and is added to the other trees on the floor, it will sit there until I finish the saddles before it and can get it started.  Once started, the saddle will move through the build process in between repair jobs, custom jobs, phone calls, emails, fishing and anything else that may come up.

This is a hard thing for a saddle customer to understand.  I don’t only build saddles.  So trying to build it on a tight schedule is almost impossible for me.  And since saddles are not my only source of income in this leathercraft business, I cannot devote 40 hours a week to them alone.

It is more comfortable for me to not let the customer pay on a saddle until it is completely done.  This gives me relief of mind if I run late on one due to other obligations in my shop or life.

And when it comes to accounting, taking saddle deposits can really throw my books off.  If I took deposits, then I could very well have a deposit (revenue in with no labor or product cost) in one year and the balance (part of revenue with all labor and product cost) in another year.  This really gets inaccurate for the true profit of the business in a years time.

Wrapping it all up!

That is a ton of “Gobbly Goop” to think about.  I am sure to have bored you to tears with all this talk of policy and accounting practices.

Maybe it is important to you or maybe not.  If you are in our LeatherHead Community simply to learn leather working skills from a hobby standpoint, then this may not be important to you.  But if you have aspirations of ever running any size leathercraft business out of this, then this is something that you will need to consider.

By no means is my way the best way.  In fact, the future-me may very well read this article years from now and disagree.  But for now this is my thought on handling payments on jobs in my shop.

The most important thing to focus on is having some type of system in place so that you are not wasting shop resources to complete jobs without collecting all money due.  I was told long ago, if you have a collections problem in a business, then it is the fault of the sales department.  You don’t have to take every job that comes in and some jobs that end up collecting dust at the pick up counter should have been passed on at the point of sale.

Take some time to think about your payment policy and see if there are some things that you can put into place to make the entire custom process, from order to completion, a pleasant one for both you and your customer.