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Apparel and other brands face a challenging climate. There are a multitude of headwinds affecting companies and wholesalers, including the trade situation, longer periods for payment of receivables, increased markdowns and allowances, store closures and new fees associated with selling on Internet platforms. These factors have combined to affect many companies’ short-term cash flows and liquidity positions, increasing the need for working capital.

According to the American Action Forum, tariffs are affecting more than $476.4 billion of traded goods annually. Tariffs have cost U.S. corporations some $34 billion, according to data cited by Axios. The Institute for Supply Management Purchasing Managers Index released in October recorded the lowest levels of activity in manufacturing since the Great Recession, accompanied by a steep drop in exports. Politico reports that U.S. companies paid a record $7.2 billion in import taxes in October. With the increased tariffs on Chinese finished goods, companies have either had to bring in goods early ahead of planned tariff increases or change their sourcing to countries such as Vietnam, India and the EU nations, resulting in higher carrying costs.

Companies are also waiting longer to be paid for their goods. Some retailers, such as some of the big-box stores, have been stretching payments to suppliers by 30 to 60 days or more, also taking unentitled discounts in the process and playing a more aggressive markdown game. At the same time, the growth of e-commerce has resulted in a whole new set of costs for brands to have a digital presence. Those selling on other companies’ web platforms such as Amazon usually have to pay them inventory storage fees, a quasi-commission taken as a percentage of the sale, and a logistics direct-to-consumer shipping fee with the aggregate having a major impact on margins affecting total revenues and profitability.

Ralph Mascia

Ralph Mascia  Shahar Azran

Given all of these variables, manufacturers are seeking increased working capital financing to help fund receivables and inventory and also meet short-term needs bridging the gap to collections. Compared to long-term debt financing, working capital can be more flexible and be repaid as goods are sold and as receivables are collected. If you are looking for this type of funding, here are three tips to work successfully with your banker.

Provide comprehensive documentation. Your lender will require a complete picture as they are your partner in the transaction. These documents can include:

  • Historical annual financials (last three years) as well as comparative interim financial information
  • A customer listing along with a current accounts receivable aging
  • A “current aged” summary inventory report
  • Historical levels of outstanding end-of-month receivable and loan balances (last 12 months)
  • Current accounts payable aging

Be ready with projections. You will need to provide an annual financial projection on a monthly basis (balance sheet and P&L) for the upcoming year (minimum 12 months). If for some reason a projection is not possible, point to the performance of your receivables and loans over the past year as a historical indicator. This will help to demonstrate your seasonality, as your lender will need to understand the ups and downs of your business cycle. Be sure to show your peak sales periods and ramp-up needs in terms of production and inventory during slower seasons as advances above your normal borrowing base may be required.

Be an excellent communicator. Problems can and will arise. A lender is normally put at ease when plans and needs are communicated. Your lender is your partner sharing the risk in all transactions. Communication will foster the perception of a well-managed company, whereas too many surprises will make a lender wonder. A delay in communicating critical issues may only serve to create tension in what should be an open relationship.

It also helps to work with a bank experienced in apparel financing that is willing to take a more personal approach and develop a long-term relationship with you. A knowledgeable banker who understands the industry and comes to know your business can assist with smoothing out the rough patches as well as working with you as your business grows, supporting you with increased lines of credit as needed.

Apparel companies and brands can thrive in today’s environment. As you take your company’s temperature and determine your financing needs, there is no need to endure the business cycles alone. A good banker can and should be your partner so that you can flourish and be able to weather any turbulence, making it smooth sailing ahead.

Ralph Mascia is executive vice president and national sales manager at BHI, a full-service commercial bank and the U.S. division of Bank Hapoalim.

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