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The Clarity Blog

4 Risks of Using a Jewelry Memo

on May 19, 2016 10:12 AM

"Did you get the memo?"

Hearing that in the jewelry industry creates an entirely different meaning than working in an office setting. And while it might be embarrassing to have missed out on information contained in a memo passed around the office, it would be downright scary to find out that your jewelry could be misplaced.

A memo in the jewelry industry is essentially a consignment, where a supplier sends their goods to a merchant. Unfortunately, these transactions have the potential to lead to legal disputes if they are not documented correctly and could negatively impact both parties - especially the supplier, who is technically lending their merchandise.

4 Risks of Using a Jewelry Memo

If you have participated in a jewelry memo in the past or plan to in the future, you should always seek the advice of legal counsel before entering into any agreement.

The risks of using a jewelry memo aren't equally apparent, but these are just a few examples of how your business could be negatively affected if you're not properly protected.*

Loss, damage, or theft of merchandise

It's not just the fact that a merchant could become the victim of a smash-and-grab robbery or sneak theft while holding on to merchandise. 

There are many other scenarios that need to be considered when jewelry is being exchanged with other members of the industry. Who would handle the responsibility if one of these situations occurred:

  • What if the merchandise is lost in shipment?
     
  • Can the goods be traveled with off the business’s stated premises? What happens if they are lost in transit?
  • If there’s an event that the memo holder isn’t insured for, like a flood, then what?
     
  • What if there’s an internal theft?
     
  • If there is indeed damage sustained, which party decides what to do next?

Terms of Payment

The longer merchandise is out on memo, more risk accumulates.

Not only does it allow more time for one of the aforementioned accidents to happen, but the memo holder could forget about making payments as the items are eventually sold.

Swapped merchandise

Assess your risk as a supplier by considering the inventory of the memo holder.

If they're responsible for a lot of merchandise from various other parties and that merchandise is similar, what are the chances that different items are mistaken for each other?

Bankruptcy

This was a frightful concern a few years ago in the midst of the Great Recession, when the liquidity of nearly every business was being tested. As a supplier, if your memo agreement doesn't adequately protect you in the case of a merchant going bankrupt, courts could actually use the merchandise on memo to satisfy debts.

However, your priority to be paid as a supplier may be less than the banks and other creditors. Therefore, if the merchant's debt obligations are large enough, your merchandise might never make it back to you.

 


 

Being informed about a mishap with your jewelry on memo isn't going to be good news, but knowing that you took reasonable steps to protect yourself can help put your mind at ease.

Talk to a qualified expert to help you understand the terms of any memo before you enter into such agreements.

For insurance purposes, consult with a professional that can help you craft a policy to fit your needs whether you use jewelry memos regularly or rarely.

 

*This is a brief overview for informational purposes only and does not constitute legal advice. Consult with an attorney for advice regarding your individual needs.

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