One of the biggest challenges facing businesses in the fashion industry today is the delay in getting paid for work that’s been completed.
Quick and ready cash flow is essential, and if a client hasn’t paid an invoice in time it can put large pressure on a small business that doesn’t yet have a lot of immediate capital to draw from.
Without a business finance arrangement, manufacturers must wait for debtors to pay off the invoices to have cash flow rolling in which can halt production and expansion.
Banks are often reluctant to loan money to newly established fashion labels due to uncertain nature of the industry. Banks are also less flexible with their lending arrangements than other finance companies. Banks rely on collateral and safety- something to fall back on which will provide security to the loan. Unfortunately, small businesses often cannot offer something of this value, unless a family house they have a home to add security to the loan. Even getting an overdraft can be an ordeal for a small business, particularly when capital is low and using a house as collateral is not an option.
As traditional forms of finance can be difficult to come by in the industry, small to medium labels must turn to different methods. Finance companies offer a range of options to get revenue into the hands of businesses.
Finance factoring is a method that secures immediate cash flow. Services like EC Credit Control offer business the ability to convert unpaid invoices, debtors ledger, into cash immediately.
With a business finance arrangement, manufacturers can produce garments, sell into retail, and immediately get around 80 percent of the face value of the invoices back. This way manufacturers can afford to continue production and see profits come back into their hands.
The finance provider is handed the responsibility for collecting the debts and pays the designer upon receiving the receipts, minus a fee for their services. Here, the business works alongside their clients, giving the client a dedicated credit controller who becomes an extension of the client’s team in collecting and managing debt.
Medium size businesses often struggle to chase up slow payers as the job often falls on the office administrator who can lack the time or skills necessary to get the payments. This results in debt collection going to the bottom of the list of things to complete. However, the money needs to come in. If you don’t have the resources to handle debt collection duties internally then do not hesitate to outsource help to a collection agency.
There are many advantages to business factoring, especially the lack of need for real estate security. Factoring is a flexible option that provides your business with funding that is equivalent to the number of sales you are making. This way, you are able to grow revenue at the same rate your business is growing, rather than waiting for cash flow much further down the pipeline or turning to a bank to desperately for an even bigger loan.
Business factoring is versatile and allows financiers to support the client through a wide range of situations and the various stages of the business lifecycle. Rapid growth, mergers and acquisitions, staff turnaround all happen in the ever-changing and fast-moving business world and business financiers will be there to help and provide support when that happens.
In the past, there was a stigma attached to business financing, with a perception that only a failing business would rely upon. Small business owners were previously reluctant to hand over their debt collecting to a third party as it would reveal to their clients they are using a factoring service. However, times have changed, and business factoring is now a $3 trillion business worldwide. In Australian alone, it is a $60 billion industry and makes up for approximately, and in the United Kingdom it makes up for 15 percent of the GDP.
It is difficult to chase up clients who are slow to pay their debts, and in small to medium businesses, the job often falls on an office administrator who may either lack the time or skills necessary to get the payments. This can result in debt collection going to the bottom of the list of things to complete. As new a business, the money still needs to be coming in.
Managing debtors is time-consuming and costly and an unavoidable necessity for emerging businesses. When debtors are exceptionally late the issue can spiral out of hand, and the cash flow that your business is reliant upon bottlenecks leaving you out in the dry. When growth outweighs cashflow, business factoring becomes a necessity.
The perception of business factoring has shifted from a sign of financial insecurity to an indicator of economic sensibilities. The alternative to factoring is to restrict orders. For newcomers in the competitive fashion industry where demand must be met, putting a halt on orders is a recipe for disaster.
Factoring does provide a quick source of income, but it also has some risks. It comes with associated fees that must be built-in to the already existing cost of running the business.
Despite this, there is greater risk in finance providers misleading small businesses and signing them up to finance plans with hidden fees and interest. This makes factoring the safer, smarter, easier and more affordable option for most small businesses.
Another one of the most important, but not often mentioned, aspects of trading as a business is having an up to date Terms of Trade. Keeping this ensures you are protected when doing business with customers or clients, with these terms to lean back on should issues arise.
EC Credit Control understands the importance of having a robust credit management process as an underlying foundation of your business. They believe that more than 60 percent of companies in New Zealand operate with little or no Terms of Trade documentation, leaving them at risk and exposed to all kinds of liabilities.
Worded correctly, a Terms of Trade document will establish a clear legal relationship your customers from the get-go.
“They are the foundation on which your business trades - the rules of your business game. They refer to New Zealand legislation and outline practical, every day clauses, around how you operate your business,” EC Credit Control said.
“Our experience working with thousands of other small businesses has shown this will improve your cash flow, greatly reduce disputes resulting in unpaid accounts, minimise your liabilities and empower you to take action in the event of non-payment.”
If your business is awaiting cash flow and doesn't have the resources to handle debt collection duties internally, then do not hesitate to outsource help to a collection agency. Take action so you can continue what you are best at and let the experts handle the unpleasant bill collection duties.