Factoring for apparel companies has always been popular. The textile and apparel company is the first industry in which the factoring method of obtaining fast cash through the sale of accounts receivables became virtually a standard practice. That’s primarily because of how clothes manufacturers and retailers do business. A clothing line offers a set of clothes to a retail store, but the retail store will pay for the clothes anywhere from 30 to 90 days. But with factoring, the clothes manufacturer gets most of the money right away (anywhere from 70% to 80%).
Today, factoring services are expanding in the business sector as many companies across a wide range of industries have come to appreciate the convenience and other advantages of factoring. Yet the textile and apparel industry is still the major player in factoring. According to one study, the majority (54%) of the factoring volume in the US is still with the textile and apparel industry.
While factoring advantages for apparel companies have always been recognized (such as greater cash flow and convenience), many apparel companies are also using due diligence as a way to help predict the future.
Assessing your Future
If you are a designer who sells clothes to retailers, one of the things you may have tried in order to get the capital you need is going to the bank to borrow money. Banks have always been the go-to lenders for working capital. What they will do is investigate your financial health (such as your credit rating) in order to assess the likelihood that you’ll pay back the loan plus the interest.
But because of the current economic climate, banks nowadays are not really in a lending mood even if your credit history is satisfactory. You probably need to put up sizable collateral in order to secure the loan you need. But chances are your loan application may be denied. That’s not really saying that your company has very little chance of succeeding. It only means that banks are quite wary about lending these days.
On the other hand, with factoring services, you may get a more accurate assessment of how your company will perform in the future. The factors will also investigate your company and if they think it is a viable partner, then they will be willing to purchase your invoices. It’s only when factoring companies reject your application that you should really be concerned about your future.
Factors also check out the creditworthiness of the retail stores that owe you money. You have to do your own due diligence, of course, but here, the factors perform the same task as well. And if the factor refuses to purchase an invoice involving a smaller retail store, that may be a red flag concerning your future relationship with that particular retail store.
There are many advantages to factoring for apparel companies. If you want your business to operate smoothly and steadily in spite of some challenges, then factoring is certainly something you should consider.