If you are in the apparel industry, you may at some point have experienced low cash flow due to numerous outstanding invoices.
Unfortunately, this situation can be pretty hard to handle, especially if there is an urgent need for cash. A low cash flow can make you close down your business.
Fortunately, there is a way you can overcome this challenge, this is where fashion factoring comes in.
Fashion factoring is where you sell your pending invoices to a third party who will give you cash for the value of your outstanding invoices.
This allows your apparel business to continue operating as smoothly as it should. It is worth mentioning that fashion factoring is not a loan.
Instead, the factoring company is buying the outstanding invoices and then sends the apparel company an advance depending on the invoice value. It can be up to 80% of the face value of the apparel company’s current invoices.
Here are the top benefits of apparel factoring
This is perhaps the most significant benefit of invoice factoring for apparel companies. For an apparel company owner, you must always have a steady cash flow. You don’t have to wait for weeks or months for your clients to pay their invoices.
You must always have money to restock clothing. Instead of jeopardizing your cash flow with unpaid invoices, you can factor these invoices and receive up to 80% of the value of your invoices.
This process can take only a few weeks and you will have the money which you can use to run your apparel company without having to wait for the clients to pay their invoices.
Freedom to use money as needed
Bank loans usually come with restrictions regarding how the money should be used. If you are applying for a loan, you may have to explain what kind of purpose you have in mind if the loan is approved.
On the other hand, factoring gives you the chance to use your money however you see fit. You don’t have to account for the factoring company what you plan on using the cash for. You can use that money for:
- Buying fabric or other apparel-making supplies
- Pay your employees
- Pay off other bills
No credit check
When it comes to invoice factoring, factors usually don’t perform a credit check on the business owner. That’s because the owner’s credit score doesn’t play any role during the application process.
What happens is that the factoring company will only check the creditworthiness of the invoice clients to ascertain that indeed these individuals have good records of paying their bills on time.
If the clients have good credit score and bill paying record, the factoring company will approve the application and give the business owner the amount that almost equals the value of the outstanding invoices.
The business owner’s creditworthiness isn’t required when applying for invoice factoring. This isn’t the case with bank loans.
Whenever you are taking a loan from the bank, the bank typically runs a credit check on you to see if you have an excellent credit rating and will be able to repay the loan.