In 2009, 61% of all factoring business focused on the apparel industry. While in other industries the factoring process may still carry some stigma (why were you denied a bank loan?), in the apparel industry it’s SOP. That’s because an apparel AR factoring line is expressly suited to how the industry works.
As a distributor to clothing retail stores, for example, you have to pay your suppliers right away. But clothing retail stores often wait up to 90 days before they pay you in full. Some make later payments than that, and others even have the gall to return the merchandise because it was unsold.
Using accounts receivable factoring can help alleviate these problems, and it will provide new opportunities for you as well.
Here are some tips you need to keep in mind:
- Study all the terms involved in the agreement. Factoring usually means getting an advance on the accounts receivable, and then getting the rest when the clothing store pays in full. So you need to take note of how much money you can get, and how soon. Keep tabs on all expenses and fees. What is the cut of the factoring company? Is there a setup fee? What happens if the retail store pays late? How long will the factoring agreement last? Every hypothetical situation should be spelled out for you, so that you can avoid any nasty surprises later on.
- See if the factoring company can do credit assessments for you. Factoring companies are more interested in the credit-worthiness of your retailers, instead of your own. After all, it’s their ability to pay is what’s at stake for the factoring company. If a factoring company refuses a retail store, make note of it. The retail store may be on the brink of bankruptcy, or it may have a habit of not paying companies like yours.
- Perhaps your factoring company can take most of the risk for you. If you are just starting out, you may ask for a deal wherein the factoring company assumes most of the risk of non-payment. As a newbie in the industry, you won’t be familiar with the clothing stores which have excellent reputations for paying in full on time. While this kind of deal may be more expensive for you, it may help you in the long run to know which stores to work with in the future.
- You can even have the factoring company do your collections for you. You are essentially outsourcing this particular task. Now you don’t have to bother with setting up a credit and collection department of your own.
Business is booming for clothing stores today, and sales have gone up by 5% in 2013. If you are part of the apparel industry, you need to put in some effort so that you can get piece of the action. With an apparel AR factoring line, you can take advantage of opportunities now, instead of waiting for 90 days.