To grow your business and increase cash flow, you need to factor in your apparel business. In the fashion industry, mostly payments are made in not less than 30 days. However, in these 30 days, businesses have run smoothly; they have to ensure cash flow and growth in the market. The fashion business is very competitive; therefore, if one slack off just a little bit, they are out of business. Therefore, you need to ensure your company is taking advantage of the high levels of industry growth during this difficult period in the fashion and apparel sector by finding a financing solution that will help you to increase your cash flow and enable continuous growth without taking on new liabilities Due to the delay in payments in the apparel industry; you must ensure that you have other solutions to pay bills suppliers and also payroll. This is where one should strongly consider factoring for a fashion business. It will ensure your business runs smoothly with ample funds even to grow your business.
Factoring enables an apparel firm to continue producing goods even if current bills aren’t paid, and the company is cash-strapped. Typically, apparel companies must wait weeks or months for payment while making goods to meet market demand. The goal of factoring is to maintain a steady cash flow before your clients pay you, avoiding any disruptions in your business.
Like any other business, the fashion sector is not factoring. It all begins with emailing your invoices and documents to a factor to obtain funding anytime you need it (once your account is set up). The factor or bank then processes your request as they assess your customer’s creditworthiness and verify the invoices. Your cash advance will usually be roughly 80% of the invoice’s face amount. Therefore, you are free to utilize the cash for any purpose related to your business. The factor thus concludes the deal by transferring the remaining funds to your account after deducting a small factoring fee if your consumer pays the entire amount.
There are two types of apparel factoring: recourse and non-recourse
In recourse factoring, the fashion company guarantees to buy back the invoice if the client does not pay it after a certain length of time. Alternatively, the clothing firm can issue a new invoice to compensate for the unpaid one. The most common type of factoring is this. The majority of factoring contracts are set up as recourse factoring services.
In non-recourse factoring, the factor buys the invoice entirely and assumes the risk of not being paid. Business Factors provides non-recourse factoring and collects the bills it factors, removing the need for back-office procedures.
Here are some of the benefits of using factoring for fashion or Apparel
- In 24 hours, you receive an advance payment on your existing invoices, resulting in instant funds.
- The factor evaluates your customer’s creditworthiness to ensure that you’re selling to a company that pays its invoices on time.
- If you’re a startup, you can raise capital without relying on a bank, which will almost certainly reject your loan request.
- You’re selling an asset (your receivables) rather than borrowing money that you’ll have to pay back month after month for years. The factor is the one that pays you back.
- If you want, you can handle the factor of your billing, relieving you of this time-consuming process.
In conclusion, factoring in the apparel industry is necessary to help in maintaining a positive cash flow.