In the business of apparel, some of the most sought-after designers are located in overseas territories. Countries throughout Europe and others like China, Honduras, Russia, and India, to name a few, are large exporters of apparel ranging in style from everyday to uniform to fine selections. However, not all these countries offer access to traditional loans needed to support export businesses. In these instances, a business owner may need to find a company that specializes in international trade financing such as Tradewind Finance to help fund shipments.
Why Is Export Factoring Necessary?
Apparel items are often manufactured with the intent to export to other countries for sale to the public. The manufacturer typically sells to a buyer. The buyer will then distribute the product to his or her retail or warehouse locations. While the end user must pay at the time of purchase, the buyer works on a credit model.
The buyer will often wait until the shipment arrives and make sure the apparel is as expected—that is, without damage. Upon approval, the buyer will then submit the invoice (or the modified invoice if some items are returned). At that point, the manufacturer, under open account terms, which is the new norm for international sales, is generally slated to receive payment in 30, 60, or 90 days, or even longer in some cases. In the meantime, the manufacturer is still in the process of producing new garments, which of course costs money. Through export factoring, the manufacturer receives money during this protracted payment period by selling its accounts receivable at a discount in exchange for an advance on payment from the factor. The buyer then pays the factor upon invoice maturity.
Why Would Export Factoring be Unavailable?
Apparel is made all over the world. While many countries produce high-end apparel, there are just as many, if not more, countries that produce lower-end apparel used for everyday wear and for uniform purposes. Many of these places are considered third world countries. As a result, many traditional banks may not do business in these countries due to legal issues or other concerns. Moreover, the country itself may not have enough funds to support the export business it so desperately relies upon. Export factoring, too, may be unavailable as an alternative option for funding in these same countries that lenders may deem risky markets.
The Export Factoring Alternative
If your apparel business is in a country in which export factoring is unavailable, there are a few other solutions. These involve taking out a loan from a traditional lending institution if you can access and are eligible for one, obtaining credit from the buyer, or utilizing governmental financing. However, these means can be difficult to obtain if your revenue is not within certain parameters or your company is simply not big enough. The alternative would be to relocate your company to a country that does allow export factoring as a means of conduction commerce or to find a way to get your goods to a location that allows export factoring then complete shipment from there. This can also be complicated because you have to fund the export to that other location.
The Benefits of Factoring
If accessible, factoring comes with numerous benefits for the manufacturer. First, the manufacturer is guaranteed operating funds to continue to make products. It removes the worry of whether or not a company will be able to continue production in between payments.
Second, the manufacturer no longer has to handle the accounts receivable and collection of the funds. The factoring company will take on the responsibility, leaving the manufacturer free to continue producing apparel and managing its employees and stock.
Finally, export factoring allows you to become more competitive in the apparel marketplace. Many apparel manufacturers offer very flexible payment terms. As a result, buyers enjoy working with them. The buyers know they are given ample time to review the purchased items, receive replacements as needed, and still make payments within the allotted time frame.
The flexibility from export factoring adds ease to the exporting process, when it could otherwise seem rushed and cause many buyers to go elsewhere for their products. Export factoring allows you, the manufacturer, to maintain a flexible timeline for payment as you are no longer dependent on the buyer to pay you immediately to continue operating your business as usual.
In today’s marketplace, it is necessary to be able to run your business without the immediate payment of an invoice. However, in a global economy, it is possible that you may be unable to receive financing for your exports traditionally. You may also have to take other avenues to access export factoring when it’s unavailable in your country. If you are in fact able to access export factoring, it is wise to seriously consider this type of alternative financing to help you support daily operations and grow. Export factoring is an effective way to continue focusing on your business goals without worrying about how the bills will be paid. Tradewind Finance is among the best factoring companies that can help you continue running your company without reliance on immediate payment.