Comments on: How To: Work With a Factor http://www.ladieswholaunch.com/magazine/how-to-work-with-a-factor/875 Resources and Community - For Business, For Life Sun, 28 Aug 2011 16:39:21 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Lena http://www.ladieswholaunch.com/magazine/how-to-work-with-a-factor/875/comment-page-1#comment-104 Lena Tue, 20 May 2008 17:10:09 +0000 http://www.ladieswholaunch.com/magazine/how-to-work-with-a-factor/875#comment-104 I am in the process of relaunching a clothing line and this article was very helpful. As of now, I haven't decide how or where my finances are coming from, whether it be a loan or I seek out an angel investor. After reading the comment left by Kathleen I am rethinking factoring. I don't think it 's right for me since I'm just starting out. Thank you so much for sharing your knowledge, Kathleen. I am in the process of relaunching a clothing line and this article was very helpful. As of now, I haven’t decide how or where my finances are coming from, whether it be a loan or I seek out an angel investor. After reading the comment left by Kathleen I am rethinking factoring. I don’t think it ’s right for me since I’m just starting out. Thank you so much for sharing your knowledge, Kathleen.

]]> By: kathleenfasanella http://www.ladieswholaunch.com/magazine/how-to-work-with-a-factor/875/comment-page-1#comment-100 kathleenfasanella Tue, 20 May 2008 15:22:55 +0000 http://www.ladieswholaunch.com/magazine/how-to-work-with-a-factor/875#comment-100 Oooh...based on 27 years of apparel manufacturing experience, I can definitely say terms and conditions vary according to industry! I don't know about other industries but the factoring fee in apparel averages 18%-20% of invoice! That is quite a hefty hit to your overhead. If you factor apparel for 3%, boy, can I ever throw you a lot of customers! I know a lot of factors both in the trade and out. The outside factors are usually shocked at the typical factoring rates in the garment industry. However, once I explain the range of services apparel factors offer, they are usually less tempted to take it on. There's two kinds of factoring in apparel. One is guaranteed, one is not. I guess there's still a third kind, mostly regional -a guy who runs around town calling on your stores with a bat in his trunk :). It's not just the fee that can make factoring unappealing for people starting a clothing line, it's conditions too. For example, once you sign with a factor, you must sign over all of your receivables. In other words, if you have clients that have always paid on time and don't need those factored, you can't withhold those. Another element worth mentioning in apparel that may be different from other industries is that apparel factors offer a greater level of services (hence their higher take). Having a factor means you don't need to service accounts. They do all of that for you so that's handy if you don't have the staff to manage it. Factors also have say-so on which orders you can fill. In other words, they have the right to say who you sell to. Some don't like that but I think it's generally a good thing. A new designer starting out has no way of knowing which stores pay their bills. In this respect, factors are credit checking services. Also, guaranteed factoring means you WILL get paid (usually in 45 days) even if the buyer doesn't pay the factor because they approved the sale. Generally, a clothing line doesn't need a factor unless they sell to department stores. There's other ways to check credit from boutiques (800+ designers networking on fashion-incubator.com for starters). There's other good reasons not to sell to department stores (chargebacks are nefarious!); I generally don't recommend it except in unusual and specific circumstances. Selling to department stores means sitting on receivables for six to nine MONTHS! And that's assuming they don't scalp you on chargebacks. You must be compliant with their vendor procedures, a whole other animal. This is a whole other level, you can't mess around. You have to know what you're doing. Maybe you did fine by hook or crook up to this point but at this level, you can lose it all. Last of all, if you have a factor, you have to manufacture offshore. There's no other way to cover those margins. The thing is, the trend in manufacturing (that you're not reading in the papers, I have boots on the ground) is to produce domestically. Anybody who can find the production slots is moving back to the States. The number one problem of my designers is not sales. Their #1 problem is finding US sewing contractors to fill the orders they have. If anything, they're turning down orders because they can't get production. Part of the reason for the increase in domestic manufacturing is that stores want to buy closer to season (offshore means four weeks on the water plus tie-ups at port). The dollar is cheaper (less expensive to produce here as compared to Asia, it's not as cheap as it once was). Domestic contractors have lower minimums, and lastly, the increasing cost of fossil fuels. Oooh…based on 27 years of apparel manufacturing experience, I can definitely say terms and conditions vary according to industry! I don’t know about other industries but the factoring fee in apparel averages 18%-20% of invoice! That is quite a hefty hit to your overhead. If you factor apparel for 3%, boy, can I ever throw you a lot of customers! I know a lot of factors both in the trade and out. The outside factors are usually shocked at the typical factoring rates in the garment industry. However, once I explain the range of services apparel factors offer, they are usually less tempted to take it on.

There’s two kinds of factoring in apparel. One is guaranteed, one is not. I guess there’s still a third kind, mostly regional -a guy who runs around town calling on your stores with a bat in his trunk :) .

It’s not just the fee that can make factoring unappealing for people starting a clothing line, it’s conditions too. For example, once you sign with a factor, you must sign over all of your receivables. In other words, if you have clients that have always paid on time and don’t need those factored, you can’t withhold those.

Another element worth mentioning in apparel that may be different from other industries is that apparel factors offer a greater level of services (hence their higher take). Having a factor means you don’t need to service accounts. They do all of that for you so that’s handy if you don’t have the staff to manage it.

Factors also have say-so on which orders you can fill. In other words, they have the right to say who you sell to. Some don’t like that but I think it’s generally a good thing. A new designer starting out has no way of knowing which stores pay their bills. In this respect, factors are credit checking services. Also, guaranteed factoring means you WILL get paid (usually in 45 days) even if the buyer doesn’t pay the factor because they approved the sale.

Generally, a clothing line doesn’t need a factor unless they sell to department stores. There’s other ways to check credit from boutiques (800+ designers networking on fashion-incubator.com for starters). There’s other good reasons not to sell to department stores (chargebacks are nefarious!); I generally don’t recommend it except in unusual and specific circumstances. Selling to department stores means sitting on receivables for six to nine MONTHS! And that’s assuming they don’t scalp you on chargebacks. You must be compliant with their vendor procedures, a whole other animal. This is a whole other level, you can’t mess around. You have to know what you’re doing. Maybe you did fine by hook or crook up to this point but at this level, you can lose it all.

Last of all, if you have a factor, you have to manufacture offshore. There’s no other way to cover those margins. The thing is, the trend in manufacturing (that you’re not reading in the papers, I have boots on the ground) is to produce domestically. Anybody who can find the production slots is moving back to the States. The number one problem of my designers is not sales. Their #1 problem is finding US sewing contractors to fill the orders they have. If anything, they’re turning down orders because they can’t get production. Part of the reason for the increase in domestic manufacturing is that stores want to buy closer to season (offshore means four weeks on the water plus tie-ups at port). The dollar is cheaper (less expensive to produce here as compared to Asia, it’s not as cheap as it once was). Domestic contractors have lower minimums, and lastly, the increasing cost of fossil fuels.

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