Fashion & Finance: What Are Your Options?


In the apparel industry, demand and customer orders can follow both positive and negative trends. In order for an apparel company to remain successful, it must regularly evaluate changes in demand and new trends, reinvent itself and/or refresh its lines to stay relevant. The efforts and resources required to continuously appeal to fashion buyers and consumers tend to be expensive and require regular cash flow, which is why many apparel companies seek an outside source of financing to keep up with these demands.

Apparel companies that are just starting out may find they have a hard time getting ahead unless they have financing that supports their business when customers are slow to pay. Retailers are often willing to place larger orders if offered terms but a smaller start-up apparel company may not be able to afford to have its cash tied up while waiting for invoices to be paid. This puts them at a disadvantage when competing against their, potentially more established, competitors. Regardless of size or age, most businesses in the apparel industry will experience times of slow or insufficient cash flow at some point. The worst position to be in is scrambling for funding when the need is imminent. Having funding options in place when the need arises is key to having cash-flow agility during slow seasons.

Why Choose Factoring Over Other Funding Sources?

Banks typically lend money to businesses that have already proven they are able to create and sustain their own cash flow and are therefore able to pay back the bank with interest. Banks typically do not lend money to startups or companies that are loss-making. Financing in the form of a bank loan often creates another monthly payment responsibility, while Merchant Cash Advances (MCA) require frequent (daily or even weekly) payments and can include excessive interest and fees. In addition, the effective APR on an MCA can extend to almost triple-digit interest annually in some cases. These lending options often create another payment for business owners to manage and often are given without much consideration to any negative cash flow impact it can have on the business long term. A factoring facility differs from a traditional term loan, with the primary difference being quicker and more flexible access to funding by leveraging the business’ sales, allowing for steady, more predictable cash flow. Factoring funding can also grow as sales increase.

Factoring services are provided by an alternative lender that advances money based on a company’s accounts receivables balances, which are used as collateral. The funding provider extends a line of credit or ‘funding facility’ based on outstanding invoices from the company’s customers. This frees up cash flow allowing it to be utilized immediately by the business. There are factoring companies that specialize in financing startups and companies that are trying to regain profitability. While some also provide additional services, such as seasonal over-advances to cover the cost of production needs and purchase-order financing, it is based on a business’s individual needs and dynamics. Unlike bank loans and MCAs, which require additional accounting oversight, businesses can seek out a factoring partner that knows about the apparel industry and can perform critical accounting and payment support tasks to decrease the business’ accounting workload.

A factoring partner can actually help an apparel business through periods of seasonality by providing the cash flow needed to take advantage of purchasing opportunities with suppliers or refresh lines in preparation for busier months ahead. Choosing an alternative lender and building a relationship ensures that when cash-flow needs arise, your company is prepared to immediately implement the solutions that make the most sense for your business.

Choosing an Effective Finance Partner

By removing some administrative responsibility from your company’s workload, a financing partner helps your business focus on doing what it does best instead of wasting time and resources on collections, credit checks and similar tasks. An effective finance partner will perform credit checks on your customers, providing you with the information you need to determine how much volume your company should have out to a customer at any given time. The right finance partner should work closely with your company and your customers to maintain and monitor account performance to detect inconsistencies in customer payments and spot trends in payment histories. The retail industry continues to struggle with sales and performance, underscoring the importance for apparel companies to know how their customers are performing, making a good partner invaluable in this process. Ensuring your factoring facility matches the invoicing patterns and client mix of your business is essential.

International Trade

If you sell internationally or plan to expand your business to do so, you will want a financing partner that is experienced and comfortable working across borders to fund foreign receivables from the onset of establishing a relationship. This is a key differentiator to investigate when comparing funders. Engaging with a funder that is capable of fulfilling the needs of your company today and into the future will prove that having the right partner helps when a need for financing arises.

Flexible Finance Solutions

Traditional finance solutions cannot provide the agility to maintain cash flow as sales increase and decrease seasonally. When purchasing opportunities arise, funding needs to be acquired quickly. The traditional solutions that can provide funding on short notice, such as an MCA or similar lender, come at exceptionally high costs with significant administrative requirements to oversee the account and the expectation that business owners make repayments on time. Bank loans can rarely be deployed quickly enough to take advantage of purchasing opportunities and often have inflexible terms.

An alternative lender can provide the flexible finance solutions businesses need with less restrictive guidelines than traditional funding options. For companies with less than perfect balance sheets that are experiencing challenges, an alternative lender provides a unique source of funding available with shorter turnaround time. These facilities often come with a broader understanding of where the business is in its lifecycle and a plan that entails supporting the business with the level of funding required. Do you need to buy new equipment or retrofit existing production lines? Are there cost savings you can realize by ordering at a higher volume? Traditional finance is often unable to provide a business the additional working capital it needs to take on increased demand, manage payroll and invest in new equipment. Establishing a funding partner relationship with an alternative lender works with your company to ensure that you have a finance solution that matches your immediate and long-term needs.


Daniel Rodrigue, National Head of Sales, Bibby Financial Services


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