Diamond Memoing 101:How Does a Diamond Memo Work?

The pervasiveness of memo sales in the diamond and jewelry industry has never been more evident than now.

No other business compares to how diamond jewelers use memos to position their precious stones for buyers. How does a diamond work?

Diamond jewelers stock their showcases with merchandise they would never have been able to pay for upfront because of the expensive cost of diamonds. But they can receive the goods through a diamond memo.

When diamonds and other jewelry are offered in this manner, the financial burden lies on the supplier rather than the jeweler.

The jeweler can get the diamond without charge and the retailer will just wait and see if the diamond will be purchased before the supplier is paid.

The retailer can also return the diamond when the diamond is not sold to a customer.

How Does Diamond Consignment Work?

Memoing for diamonds involves manufacturers, retailers, sellers, and buyers.

All of them agree, as stated by the Jeweler’s Resource Bureau, that doing business on a memo basis means that a manufacturer is providing goods for the retailer to sell for a specific, usually relatively brief, period, with the manufacturer getting paid only when the goods are sold.

There are various factors taken into consideration with diamond memos such as:

A diamond consignment implies a longer, and sometimes indefinite, length of time.
Consignment is a term used more frequently in the crafts and art world
Memos is the term more often favored in the jewelry business
Paying for sold goods and returning the remainder of unsold diamonds and jewelry should be in a timely fashion
Not treating memoed diamonds and jewelry as second-class citizens. Their sales point should not be regulated.
Selling memoed diamonds and jewelry can best be sold alongside the same products from the same designer of the memoed goods
Retailers usually give at least a month to see if memoed diamonds strike a nerve
Setting up a cutoff date is something just as important as setting up the memo arrangement
There are options of getting a mixture of purchase and memo or continuing a memo arrangement indefinitely
Each situation on providing a diamond memo is dealt with separately and usually, depends a lot on the relationship between the supplier or manufacturer and the retailer

How Does Jewelry Memo Work?

It was mentioned that a diamond memo is issued depending on varied circumstances and the relationship that exists between the parties involved.

So how a jewelry memo works is defined by the situation.

Here are a few examples:

Steven Kretchmer of Steven Kretchmer Designs of Palenville, N ew York said he only does memoing and provides goods under certain circumstances.
Michael Good Designs has a policy of keeping the amount of memoed goods to a maximum of just a few percentage points.
The company would usually require stringent conditions to grant a memo request such as:
- Having a special show or
- When a big, elaborate piece is desired
- Opening a new store
- They know the buyer well
In Englewood, New Jersey, Mercury Ring Corporation said they memoed only for customers who already have someone lined up for a sale or when they have closeouts.

So, what does a diamond memo do?

A diamond memo provides an agreement between the parties involved about the diamond being purchased or sold.

Retailers are typically charged a premium and pay a markup of around 5% to 10% on average.

Wholesalers carry more than their fair share of risk when they offer the memo.

They are usually the ones that take on the burden of providing the diamonds without being paid. They hope that the retailer will be able to sell the diamond.

Because of the risk that diamond memos entail, it is recommended that an appropriate insurance policy is in place.

It is important that you fully understand the insurance policies and the coverage that it affords them.

Make sure that if you are a business owner, your insurance policy is fully renewed to ensure your protection.

Ask a trained professional to reevaluate your coverage so that you are sure that there are no gaps and that you have an adequate policy that will provide what you need when circumstances arise.

Focus on these key areas outlined by Peter Van Lennep when making sure that your insurance policy on a diamond memo is in place:

Confirm with your broker or insurance carrier that your policy includes a memo limit.
Understand how your memo coverage works. Your broker or agent can explain the important coverage point and exclusions to you.
Set a memo limit that matches your normal consignment values. Refer to it often so that you don’t exceed this limit in error.
If you do exceed your normal memo limit for select clients, ask your insurance carrier if it is willing to allow you a higher limit specifically for those clients.
Gain a better understanding of who you are lending your goods to. This will allow you to make more informed decisions and minimize risk.

A key takeaway is that for a diamond memo to work to your advantage, you should be able to take the necessary steps to minimize the risks involved in the transaction.

Solid insurance coverage can be a great help to safely send your diamond and jewelry on consignment or when you offer a diamond memo.

Free Financing With a Diamond Memo

Despite the controversies that the jewelry industry has faced regarding memos, a memo is still considered essential free financing for the retailer.

Suppliers are tied up to risks while the retailer gets the goods under agreeable terms.

A retailer’s markup on a diamond memo is a small price to pay for eliminating the risk involved in an outright purchase.

Knowing how a diamond memo works under considerable circumstances helps maintain the trust and confidence between manufacturers, suppliers, and retailers in the diamond industry.

Know more about diamond memos by calling us at Shira Diamonds.

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