Cash flow for inventory intensive management

Inventories, because of their constant pressing demand for cash flow, is the most common factor for disruptions in business productivity. Cash flow can be adversely affected by inventories in the form of slow moving or obsolete goods, as well as stockpiling for seasonal sales among other reasons.

For SMEs, it is a familiar scenario to endure extended payment terms with their customers that can take up to 90 days. The universal impact of insufficient working capital limits the operating flexibility of any business. For this article, we can explore the fashion industry and the business of manufacturing that is affected by lengthy payment cycles and its causes.

Manufacturers work in parallel with demanding retailers

Clothing manufacturers are just one type of business that is inventory-intensive and where operations such as labour and equipment funding are dependent on working capital. Major garment retailers hire services of a manufacturer to produce their branded products. The manufacturer will attempt to offer a lead time critical path of around three to four months from sample collection to bulk delivery to allow the retailer to be ‘on trend’. Although a few are quicker, this is the norm, meaning that inventory demand remains high.

By way of an example, Spanish retailer Zara turns their collection around every two weeks, to deliver their concept of ‘fast fashion’ that involves a fresh window display with ample new stock inside. With such a quick turnaround and high consumer expectations, retailers put pressure on manufacturers to produce an overwhelming quantity of garments.

Could the growing number in closures of retail stores and a change in consumer behaviour be the reason for extended payment terms?

According to Coresight Research, a retail analysis and advisory firm, 4,480 retailers closed this year in the U.S alone, but the stronger players are capitalising on the industry’s failures. Retailers and brands are pushing new products to consumers across multiple channels and different geographic regions in the hope of striking a sale — yet increasingly volatile and unpredictable demand means they often have to turn to markdowns and other promotions to shift high levels of unsold stock. The result of this leading to retailers taking more time to pay their manufacturer’s invoices.

Inventory management is important to any business trying to remain competitive and profitable whilst continuing to grow. Not enough inventory means lost sales, but on the flip side, too much inventory means increased costs for storage and management as well as less cash on hand.

Fashion forward

Fashion is one of the most fast changing industries in the world, where new season collections and ‘throw-away fashion’ is in constant high demand. Retailers are pressured to turn over continuous new product lines to stay relevant in the fast paced trending industry, but this can often lead to a sizeable number of unsold stock ending up in clearance which takes longer to shift. Profitability from sale stock purchases are achievable, however the margins are smaller.

With retailers aggressively pushing out high levels of inventory, manufacturers are inundated with a considerable heap in orders. To keep on par with this, a proficient internal workflow is vital and manufacturers cannot afford to lose production time or falter in any aspect of their operations.

The competition fashion retailers face against e-commerce distributors

A market research study carried out by the team at Populous World discovered that e-commerce giants such as ASOS and Net-a-Porter offers a wider variety of brands and sizes, more options are available and goods purchased can be delivered the next day in just a one-click process. The benefits of purchasing online matches the same as shopping in-store but wins by its convenience, with accessible functions from returns and exchanges that come with free shipping all from the comfort of your home.

This leaves a wide opportunity open for manufacturers. The behaviour of shopping may have changed, but the source of garments still lead to one place — manufacturers. As much as an overload of unsold stock is unprofitable for retailers, too little stock will also cause lost sales and lost customers. Retailers are now seeking venture capitalist funding to improve their stores, stay relevant with technology that can allow shoppers to purchase online and collect in-store, to stay in the competitive race against online giants.

According to a recent article by the New York Times’ financial reporter, Michael Corkery, investments in new stores and digital offerings are being made at an opportune time, when the strong economy is giving retailers the necessary cash. But any economic weakness could derail their progress before it takes root. Amazon remains the omnipresent cloud, putting pressure on profits and forcing retailers to keep evolving, therefore imposing production strain on manufacturers.

How manufacturers can achieve sustainability despite extended payment terms with retailers

Businesses of all magnitudes, have a limited pool of capital to work with, both monetary and personnel. A shortfall in working capital reduces efficiency and disproportions sustainability. Obtaining cash flow from an external funding source such as invoice financing, also referred to as purchase order financing, will boost management time and allow for more resources which will in effect accumulate manufacturing capacity, minimise management distractions and reduce shortage issues such as equipment and staff.

If your business sales are growing and you need to know that your cash flow will keep pace, then purchase order financing may be the best fit for your business, particularly if you are looking to secure funding that grows in line with your sales or you have money tied up in the sales ledger that could be working harder for you. With invoice financing, cash can be released from invoices on the next working day, providing you with crucial funds needed to manage and sustain operating activities and to keep up with demanding inventory orders. A shortage in working capital will hinder the configuration of a business’s workflow, but with extensive cash at hand, entrepreneurs have the ability to free up time to focus on growth objectives and be readily prepared for demanding inventory requests.

Populous World

The Populous World platform provides the means for global investors to participate in an auction of invoices, the advantage of this being cross border payments can be taken within seconds, allowing the invoice sellers (in this case, the manufacturer) to receive their cash instantly. This effective funding formula provides substantial short-term funding solutions to increase business activities, allowing manufacturers to receive more cash flow or working capital up front, at a lower discounted rate.

“Growth and profitability are aways in the forefront of the mind of a business owner, and invoice finance gives you the working capital to achieve this.”
Alex Oritogun, Populous World

In recent times, there has been considerable growth in purchase order financing, which is an alternative form of short-term funding that uses a crowd sourcing approach to access wealthy individuals to provide the finance (instead of financial institutions).

Improve your cash flow and operating activity by releasing working capital tied up in unpaid invoices
How invoice financing works at Populous World — 5 simple steps

1. You provide sale of goods or services to your customer and invoice as usual.

2. Upon verification and risk assessment, provide the invoice that will be payable to ‘Populous World’ to your customer.

3. Upload said invoice onto our platform which then invites invoice buyers to bid on your invoice.

4. Receive the cash flow within 24 hours of the auction closing sans interest fee.

5. Upon repayment, the customer repays the invoice by making a full payment to ‘Populous World’.

To capitalise and stay in the race against the fast paced competitive challenges of the fashion industry, invoice financing and the advancement of cash against invoices within 24 hours, is rapidly becoming a popular and widely used funding tool for manufacturers globally.

Lou Chan, Populous World.

If you are looking to seek effective cash management for your business, visit us or speak to a member of our funding team to unlock the cash flow you need in just 24 hours.