Guest Editorial: The Funding ofApparel BrandsBy Eric Gunther

It is an exciting time for the apparel industry. Success stories are rapidly emerg-ing after the hardships of the recession. For the first time in years, enterpris-ing brands can take advantage of this momentum and fund new opportuni-ties through something called trade finance.

Trade finance, evolved since the 1700s when young US colonies were traveling products between continents, is defined as the funding of companies that are importing, exporting and distributing goods. Factoring is a form of trade fi-nance commonly used in the apparel industry. This practice boosts your cash flow by providing an immediate advance of cash into your business against the value of your outstanding invoices. And, because approval is based on the strength of your customer’s credit, it is less strict than traditional bank loans.

Factoring terms are fairly standard: you sell your receivables to a factoring company, which typically advances you 80 to 90 percent of the invoice value within 24 hours. The remaining amount collected from your buyers is then returned, less a financing fee. Rather than waiting up to 90 days for payment, this method gives you immediate cash to pay suppliers, factories, and fund selling expenses. The factor also checks the credit worthiness of your accounts and manages the collections of your invoice debts.

Some factoring companies sell their services prepackaged with credit insur-ance. Others allow you the freedom to customize insurance separately for all or some retail accounts. This advantage offers the ability to approve more retailers and especially boutiques. You can also opt for non-notification fac-toring, which is a way to keep your funding relationship confidential. This is ideal for companies that want the appearance of “in-house terms.”

International Factoring is a solution for sales to retailers or distributor sell-ing products abroad. It is already frequently used in the U.K., Asia, and South America. With almost 95 percent of the world’s consumers living outside the U.S., this allows for tremendous growth in sales.

Other trade finance options available for brands and their suppliers include purchase order funding and supplier assurance letters. Lastly, in wholesale or even retail, it is pos-sible to receive an advance based upon your credit card processing or bank deposit his-tory; this is also known as an ACH loan or Merchant Cash Advance.

Since the Great Recession, apparel companies have become more open to alternative funding groups who offer more than the traditional sources. The customary lenders in the industry have increased credit restrictions and tightened approval for boutiques to safeguard against risk. This also is due to many traditional factors being directly fi-nanced by banks. Additionally, credit insurance companies reduced insolvency cover-age for major retailers.

Now, more than ever, it is important to find a provider that is well-capitalized and capable of being flexible. For those apparel brands that are entering the market for the first time even turning around from a rough patch, trade finance offers a wide range of solutions.

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