How to Grow Your Apparel Brand with Innovations in Trade Credit


Trade credit is used by 60 percent of small business in the United States and is the second-most popular form of financing (behind business loans).

Underneath that statistic, there’s a great deal of variety in how trade credit programs work and how business is done in the apparel and lifestyle industries. As with other forms of financing there are pros and cons to trade credit agreements.

While extending trade credit can help grow your apparel business, it also exposes it to risk. After all, every moment counts when closing a deal with a new retailer and delays in funding approvals can result in that deal’s deflating. Meanwhile, you’re acting like a bank and extending credit, potentially compromising your fiscal health.

In this article, we explore why trade credit is essential to helping your grow your apparel business, and how new innovations in fintech are reducing risk in a competitive landscape.

Benefits of trade credit

A trade credit agreement is an agreement in B2B transactions where the seller or vendor allows the buyer to receive services or products up front and pay for them later. In many business cases, sellers will give buyers Net-30/60/90 days to pay their invoices. This is also known as “net terms.” In the apparel industry, terms may stretch to 120 days or longer.

Here are four of the most important benefits of extending trade credit:

1. Make bigger sales and get wider distribution to grow your brand

Apparel brands that offer trade credit can typically count on more sales than if they offered only immediate payment terms. With the knowledge that they have flexibility around payment and longer net terms, retailers can buy your inventory and place bigger orders since they have longer to pay.

One result of this is that you can expand your brand in more locations faster than you would if you required cash payment up front. Oftentimes, retailers simply cannot afford to do business with your brand without that extra time to pay.

2. Earn more orders and re-orders

If your products are selling like crazy and a store needs more inventory to meet demand, having a trade credit agreement in place can be beneficial. You can offer your retailers periodic or immediate inventory replenishment without waiting for payment — and retailers get the reassurance that they can keep up with inventory demands.

Grant Mahan, who runs a robust wholesale business as head of sales operations at Sunski, a seller of high-quality polarized sunglasses, attests to the important role trade credit plays in nurturing ongoing retail relationships.

“The majority of our retailers — 80 percent — get net-30 terms,” says Mahan. “The idea is that they earn the money from the product as they’re selling it.”  

With available credit in place, retailers can make sure they keep goods flowing. It’s also great for brands looking to improve efficiency and reduce lag time in their replenishment schedules.

3. Build stronger relationships

Giving retailers extra time to pay allows them more breathing room and more freedom to put their cash to work on what will help them grow their business and reach more consumers.

Darin Newton, Director of Credit at VF Corporation’s Outdoor division (the parent of well-known global brands such as the North Face, Vans, Timberland, and JanSport), notes that building those personal relationships is a crucial part of his role and his brand’s success.

“Once you’ve gotten to know a customer and even met them face to face they relax a little bit more and will share more about their business, more about their struggles, more about how you can help them. Once you’ve forged that bond, you can pick up the phone and you’re more than just a voice. That right there is invaluable.”

4.  Meet or beat your competition

There’s no way around it, retail is a tough business. Brands must constantly innovate and retailers must work harder than ever to compete. Given this challenging environment, strong credit partnerships between brands and retailers can make a difference.

When you’re competing for shelf space with similar brands, your ability to offer flexible credit might make a big difference when it comes to a retailer’s ability or desire to transact with you. If brands in your space are offering net-30 terms, retailers will expect the same from you.

To get an edge on your competition, you can also offer slightly better terms, and include discounts for early payment to entice more retailers and start new relationships off right.

Risks of trade credit agreements

Offering trade credit is a critical requirement for businesses to remain competitive and drive growth, but when you offer trade credit you’re also entering some risky territory. By letting your buyer have their order now and pay for it later, you’re accepting higher risk and delayed sales revenues. In other words, your apparel brand is acting like a bank, extending loans.

If your margins and liquidity are healthy, this may not have an impact on how you operate your business. But, if you struggle with cash flow, proceed carefully in how much trade credit your offer and how you schedule your own payments.

How fintech is helping apparel brands improve bottom lines

One way to avoid this issue is to take advantage of recent advances in big data analytics and machine learning. The rise of these innovations combined with a rapidly growing amount of information available and an accelerating speed at which we can analyze that data means that nontraditional fintech lenders can base their credit decisions on a more holistic picture of business health.

Drawing on multiple data sources such as bank account transactions and online accounting software, lenders can achieve a more complete picture of the health and performance of a business. This enables them to return reliable lending decisions to businesses previously shut out of access to credit. Plus, since these lenders rely on AI-driven underwriting processes, less paperwork is involved speeding up lending decisions with funds often being transferred to approved businesses within one business day.

Consider this scenario:

You’re headed to a trade show with the goal of signing up more retailers and getting your apparel in new stores and in front of more shoppers. What if some of those retailers are small shops and you’ve never worked with them or even heard of them before? Or they’ve just opened shop in the past year and have a thin credit history or lack trade credit references?

If you rely on traditional credit reference checks, it can take hours or days to approve new buyers. If a new retailer is ready to buy now, that waiting period can be a deal breaker. That kind of slow underwriting can kill deals.

Faster payments save you money

With a B2B credit studio solution from a fintech lender, you can transact with confidence, knowing you’ll be paid right away, while your smaller retailers enjoy true net-60 terms, personalized service, and the level of treatment you want to extend to all of your valuable customers. And you’ll enjoy all the benefits of trade credit — increasing revenue opportunities, building new relationships, and beating out the competition — without assuming all the risk.

Irene Malatesta is a business content strategist with Fundbox. Fundbox is a leading AI-enabled business capital platform designed to accelerate B2B commerce.

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