The holiday sales season is vital to the apparel industry. Companies that specialize in crafting and selling clothing often enjoy their highest profits of the year during the months leading up to the holiday season. However, apparel business owners must have the money on hand to make sure that their orders are filled and that their clothing hits the market well before this season starts. They can be ready for this busy time of the year by utilizing the benefits involved with factoring their invoices now.
1) Cash Without the Wait
Getting ready for the busy sales season requires that clothing businesses have a steady cash flow. They may be unable to wait weeks or months until their clients pay their invoices. They need money now.
Rather than jeopardize their cash flow with unpaid invoices, they can factor their clients' obligations and receive up to 80 percent of what is owed to the now. As soon as the clients pay their invoices, the factor will then deliver the remainder of the invoice totals to them, minus the factor's fees. Business owners can have the money they need now without having to wait for their clients to pay their bills.
2) Not a Loan
Factoring also can be convenient during this busy time of year because this transaction is not a loan. In fact, it is a rather quick process that can take a month or less from start to finish.
Unlike a bank, a factor will advance the money for the invoices and then collect the unpaid invoices from the business' clients. The factor does not require that the business owner makes monthly payments or otherwise keep the account open after the clients have paid their bills. The business owner can decide whether or not to close off the account permanently or utilize the factor's services in the future.
3) No Credit Check or Credit Risk
Also unlike a bank loan, factoring does not come with any risk to an owner's credit. In fact, the owner's credit does not come into play at all during the application process.
The factor will check the credit worthiness of the invoice clients and ensure that these individuals have good records of paying their bills on time. If a client has a good credit rating and bill paying record, the factor may then approve the application and advance the owner most of the money for the outstanding invoices. The owner's credit is not required to meet credit standards as a bank otherwise would demand.
4) Freedom to Use Money as Needed
Bank loans typically come with restrictions for how the money can be used. An applicant may have to explain what kind of purposes he or she has in mind if the loan is approved.
However, factoring gives people the chance to use their money however they see fit. They do not have to account to the factor for what they plan to use their cash. They can use it for:
- Advertising
- Buying fabric or other apparel-making supplies
- Expanding the client base for next season
- Paying off bills that the business owes to other creditors
- Making payroll
These purposes are all relevant to why apparel businesses need healthy cash flows and rely on their paid invoices. Factoring unpaid invoices can help business owners address other operational concerns that play into their overall viability and profit.
5) Relief from Collection Efforts
Collecting on unpaid invoices can take a lot of time and effort that a person may otherwise prefer to spend on other matters. When this individual uses factoring for the apparel business, he or she can enjoy relief from the collection efforts that are sometimes necessary in this industry.
The factor can in fact take over the collection efforts and make sure that the invoices get paid. The business owner is relieved from this responsibility and can instead receive the money needed to keep the business's cash flow stable during the holidays.
The busy holiday season can make or break an apparel business owner's success. Rather than risk the business' profits because of stagnant or negative cash flow, this person can factor the unpaid invoices and get the cash today that is needed to fill orders, get the clothing on the market, and expand the company.
