Factoring and the Apparel Industry: Part 1
Inspired by our favorite annual event, MAGIC Market week, held every February in Las Vegas, we’re reflecting on how the event and the apparel industry have changed over the years and the difference the right financing can make to an apparel company.
MAGIC, Then and Now
We’ve seen notable changes at MAGIC Market Week over the years, both in numbers and in types of companies attending, which are evidence of the continuing evolution of the apparel industry. Although some aspects of fashion – design, production, sales – remain essentially the same, a fundamental change in the way designs get to market has caused a huge shift in the industry.
Large department stores and traditional mall anchors are disappearing from MAGIC and from the industry. They’ve been replaced by small, unique online retailers and subscription model businesses like StitchFix and JustFab. Young brands, startups and independent creative types make a showing at MAGIC to get their product seen and their businesses moving.
The Challenges of Cash Flow in the Apparel Industry
Some things don’t change; one of those is the need for cash flow or working capital to run a business. Regardless of size or age, most businesses in the apparel industry will experience times of slow or insufficient cash flow at some point. In fashion, lines and SKU's can follow both positive and negative trends, so in order for a company to remain successful, it must regularly re-invent itself or refresh its lines to stay relevant. The effort and resources required to continuously appeal to fashion buyers and consumers tend to be expensive, which is why most apparel companies can’t remain self-funded for long and must seek an outside source of financing.
… and How Apparel Factoring Solves Them
Factoring, or accounts receivable financing, is one of the most popular forms of fashion finance. Many businesses recognize factoring as a viable and affordable financing solution to their cash flow challenges when other options such as bank loans and personal or business credit cards may not be ideal.
Smaller apparel companies often have a hard time getting ahead unless they have financing that supports the business when customers are slow to pay. Additionally, retailers are often willing to place larger orders if they’re offered terms, but the small apparel company usually requires payment up front because it can’t afford to have its cash tied up in an invoice waiting for payment. When the company factors its receivables, however, it can offer terms to its customers and fulfil larger orders.
Larger apparel companies face their own challenges when it comes to cash availability, especially if demand for their products changes with the seasons. With the swings in cash flow associated with launching new product lines and seasonal fashion, covering large purchase orders, and ensuring timely supplier payments, the appeal of steady, consistent cash flow unaffected by terms and customer payment delays is undeniable. This is why apparel factoring is on the rise.
In part 2 of this series, we’ll explore the differences between apparel factoring and a bank loan.
To learn more about Bibby Financial Services and how we can help your business, contact us today at firstname.lastname@example.org or at 877.882.4229.