Starting a fashion brand is an exciting endeavour that requires creativity, passion, and financial resources. Various costs are involved in building a successful fashion brand, from product development, marketing and sales. However, financing your brand can be challenging, especially for fashion designers and small fashion businesses. We sat down with our partner Frans van der Hoorn, Managing Director of MODINT Credit & Finance, to get his insight and advice on how fashion brands can finance themselves to turn their dreams into reality.
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Financing your Fashion Brand
Factoring and supplier credit are the most common ways to fund your fashion brand. Factoring involves selling your accounts receivable to a third party, known as a factor, at a discount in exchange for immediate cash. This can help brands bridge the gap between delivering goods to retailers and receiving payment, providing much-needed working capital to cover production costs, marketing expenses, and other operational needs. On the other hand, supplier credit involves negotiating favourable payment terms with your suppliers, allowing you to defer payment until after the goods are sold. This will enable brands to manage their cash flow by delaying payment obligations and providing more time to generate sales and revenue. However, it’s essential to carefully evaluate the costs and risks associated with factoring and supplier credit, such as fees, interest rates, and potential strain on supplier relationships, before choosing these financing methods for your fashion business.
Fashion brands can employ various methods to effectively manage the condition of their business and finance the growth. One common approach is maintaining a comprehensive budget and business plan outlining their financial goals, projections, and expenses. This can help you make informed decisions about spending, investments, and revenue generating strategies. Additionally, keeping accurate and up-to-date financial records allows fashion brands to track their cash flow, monitor expenses, and evaluate the financial performance of their business.
Another practice that fashion brands and business owners should utilize is getting credit insurance for their brand. Van der Hoorn recommends credit insurance to brands because of the industry’s volatile seasonal and trend fluctuations. He says, “Protecting your brand and preventing issues in advance is essential for money management and good financial health.” Another interesting point Van der Hoorn brought up was the concept of circularity in the economic context and how brands downplayed and ignored their financial waste. According to him, identifying and addressing financial inefficiencies in contracts and business partnerships, and finding solutions to fix them, is a highly effective approach to money management. These different options can help your brand stay financially sound as you make informed decisions for the long-term success of your business.
Target Market Research: Financial Practices & Regulations
As a fashion brand looking to expand into new markets, it’s essential to understand the markets’ financial practices and regulations in the early stages. Proper knowledge of the economic landscape in a new region can significantly impact your business’s success and help you navigate the complexities of international trade. Even when receiving payments, the methods are diverse depending on the country. Van der Hoorn explained that “the European market is comprised of several countries, with differences in every region. Northern parts of Europe pay on time or within 30 days, whereas in Southern countries, the wait for payment can range from 60-90 days.” Doing your research in advance will allow you to explore your options and ensure a smooth entry into external markets.
Why Understanding Financial Practices and Regulations is Crucial
Entering a new market as a fashion brand requires careful consideration of that region’s financial practices and regulations. These practices and laws dictate how business transactions are conducted, payments are processed, and financial risks are managed. To effectively understand the financial rules and regulations of external markets, consider the following key steps:
- Conduct In-Depth Research: Thoroughly research the target market’s financial practices and regulations. This includes understanding local laws, regulations, tax policies, currency exchange practices, payment methods, financing options, and other relevant economic factors. Accessing reputable sources of information, consulting local experts or partnering with local advisors can be valuable in gaining accurate insights.
- Assess Compliance Requirements: Identify and assess the compliance requirements of the target market. Understand the regulations related to taxes, customs, import/export procedures, and other financial obligations to ensure full compliance and avoid any legal or financial risks.
- Evaluate Payment and Financing Methods: Evaluate the target market’s principal payment and financing methods. Familiarize yourself with the local payment preferences, credit terms, and invoicing practices to ensure smooth financial transactions with customers and suppliers.
- Seek Professional Assistance: Consider seeking professional assistance, such as local legal or financial advisors, to ensure an accurate understanding of the financial practices and regulations of the target market.
Protecting your finances
As a fashion brand, one of the challenges you may face is dealing with non-payment or late payments from retailers. These issues can significantly impact your income, profitability, and financial stability. Therefore, it’s crucial to have strategies to protect your brand’s finances and minimize risks. These are some practical steps your fashion brand can take to safeguard your finances from non-payment or late payments:
- Don’t Wait Too Long – Protect Your Cash Flow & Profitability: “Don’t wait too long!” was Van der Hoorn’s main point throughout our interview, he emphasized the importance of preventing problems ahead of time. Non-payment or late payments impact your brand’s profitability. You cannot generate revenue and run your business operations if you do not receive payment from your retailers. Additionally, late payments may result in additional costs such as interest charges, penalty fees, or legal fees if legal action is necessary. Taking timely action can preserve your brand’s profitability and minimize the impact on your financial performance.
- Establish Clear Payment Terms: One of the first steps in protecting your brand’s finances is establishing clear and mutually agreed-upon payment terms with your retailers. This includes clearly defining the payment due date, the amount, and any applicable penalties or fees for late payments. Make sure to have a written agreement outlining these payment terms and have both parties sign it to ensure clarity and enforceability.
- Conduct Credit Checks on Retailers: Before engaging in business with a retailer, it’s conductingonduct thorough credit checks to assess their financial stability and creditworthiness. This includes checking their credit history, financial statements, and business references. This information can help you determine the level of risk associated with each retailer and make informed decisions about extending credit or setting payment terms.
- Require Partial or Full Payment Upfront: To reduce the risk of non-payment or late payments, consider requiring partial or complete payment upfront from your retailers. This can provide a buffer to cover potential non-payment or late payment issues and help you maintain a healthy cash flow. You can also offer discounts or incentives for upfront payments to encourage retailers to comply with the payment terms.
- Monitor Payment Patterns and Follow Up on Overdue Payments: Keep a close eye on your retailers’ payment patterns and proactively follow up on any overdue payments. This includes sending reminders, invoices, and follow-up emails or calls to prompt timely payments. Establish a systematic process for monitoring payments and take swift action when payments are delayed resolving the issue promptly.
- Seek Legal Assistance When Necessary: If non-payment or late payment issues persist despite your efforts, it may be necessary to seek legal assistance to protect your brand’s finances. Consult with legal professionals specializing in commercial law and have experience in handling payment disputes or debt collection. Legal action may be required to enforce payment terms, resolve disputes, or recover outstanding payments.
In conclusion, financing is essential for businesses to maintain and expand their operations. To help our clients grow their fashion brands, we recommend our partner, MODINT Credit & Finance, to them to receive professional credit management and support. MODINT Credit & Finance is a leading provider of balanced credit management concepts in the sectors of fashion, apparel, textiles, and footwear in Europe, with over 75 years of experience. From offering industry-specific applications and integrated solutions to legal advice and assistance, MODINT Credit & Finance commit to supporting fashion brands in their pursuit of success. If you want to create a solid foundation for your fashion business, FNAD can help you enter and reach new markets and connect you with partners like MODINT Credit & Finance to help your business thrive and make its mark in the industry.