Financing for Fashion SMEs – a chat with SupplyCompass
Last week we caught up with SupplyCompass to discuss all things finance for Fashion SME brands. SupplyCompass is a production platform that uses cloud-based software to allow fashion brands and manufacturers to collaborate easily throughout their development and production processes. From design to delivery, everything happens in one place.
Nikki Gandhi, our Partnerships Manager, joined a webinar led by CEO of SupplyCompass, Gus Bartholomew. Together they went through how SupplyCompass’s fashion clients can navigate the world of financial planning. In a year that has seen the industry turned on its head, access to working capital has never been more critical.
While there are challenges right now, there are also lots of opportunities that we're seeing in fashion. Many fashion businesses are using apps to help them with their cash flow forecasts. For example, Float, Fluidly, and others. And what that allows them to do is short-term cash flow forecasting, as well as long-term.
The SupplyCompass team is acutely aware of the challenges COVID-19 has posed. Gus explained that “this year in particular has been a year where fashion businesses have really needed support”. With all the different stages of production that have been affected, it’s difficult to foresee sudden changes, such as lockdowns or social distancing influencing manufacturing capacity. Right now, being able to know how to plan your finances over just a few weeks or months is more helpful (and realistic) than trying to construct a 5-year plan.
COVID-19 has had an enormous impact on the fashion industry. From disrupted supply chains and changing consumer preferences to forced closures of many bricks and mortar stores, 2020 has certainly been a challenge. However, there are financing options available to those in the fashion industry that SME brands can and should be tapping into.
In the webinar, Nikki went through the different financing options we have, starting with invoice finance. Put simply, it’s ‘when a business raises funds against their outstanding invoices from their customers’. For a fashion brand, that’s likely to mean wholesalers or retailers.
A huge cash flow challenge many businesses face is how to cover overheads like wages and stock while waiting for payment for previous orders to be fulfilled. COVID-19 has made this tougher still on businesses as we’re seeing a massive increase in payment terms. According to Nikki, terms are going from 30 days to 60 or 90 days, and some extending even further than that. Invoice finance is a useful tool for an entrepreneur to have so they can always make sure they can pay their team, bills and cover stock.
At MarketFinance we offer a few kinds of invoice-backed funding options. The most popular is Selective Invoice Discounting (SID). As Nikki puts it, you can ‘cherry-pick the invoices or the customers that you would like funding against’. It’s entirely up to you to decide what size of the invoice you choose to fund against and how many you’d like to commit. Many businesses use this option so they focus on higher-value invoices to cover significant costs.
Other customers like to fund against every invoice, which we call Confidential Invoice Discounting (CID). This is referred to as funding your whole book or ledger and means you don’t have to think about which invoice to fund against or when. Both options are currently available through the government-backed Coronavirus Business Interruption Loan Scheme (CBILS), which we call a revolving credit facility. Under the scheme, businesses have access to between £50,001 and £5m without having to pay fees or interest on the money for a whole year.
There are two main ways to get financial support. The first is through lending, so there’s what we do at MarketFinance with invoices and loans, and a whole plethora of other options. You can look into overdrafts, credit cards, asset finance and more with other banks and lenders. Alternatively, the other route is to look for funding and investment. Angel investors, Venture Capital, Research & Development grants and working with enterprise investment schemes.
Every solution has its pros and cons so it’s worth researching in full. Lending will usually mean quicker financial support for your business without losing any equity in the company. But it will also mean that those funds will have fees and interest applied. The government schemes won’t last forever. Investment can offer you expertise and a larger network to help support your business. Every business needs to weigh up what’s right for them, and that can change at different stages in your business lifetime.
Business loans are a great option if you want a quick cash injection. Under CBILS, we offer up to £250,000 to eligible businesses over 2 - 5 year terms, with no early repayment fees. CBILS has been a lifeline to many, whatever format businesses have taken it in. In Nikki’s words, the scheme ‘can really help your businesses thrive, and in some cases just survive the pandemic’. Whatever your priority is right now, CBILS can help you achieve it.
The government has also got a Bounce Bank Loan Scheme (BBLS). These are smaller loans, up to £50,000, that require businesses to jump through fewer hoops. On top of this, there are a number of grants, local council schemes and of course the furlough scheme to help businesses get by. Make sure you keep an eye on the government website to see what you’re eligible for.
Every lender will have their own risk appetite and eligibility criteria. But for all CBILS and BBLS applications you need to prove that your business has been impacted by COVID. This could mean lost sales, cancelled orders, increased costs and much more. The main thing the government wants to know with this scheme is that your business model is viable and profitable in normal circumstances.
It could also be a positive impact, such as a pivot. You can absolutely use CBILS to fund your next business step if you’ve been forced to change by the current economic and social environment.
At MarketFinance, our application process is really quick and takes just 10 minutes to complete. All we really need from you are your statutory accounts for the last two years, your turnover and net profit for 2019 and a few recent bank statements. You can just upload those onto the system, it couldn’t be more straightforward.
You’ll also need to be a limited company or an LLP registered in the UK and your turnover has to be over £100,000 per year. Generally, though, we’re looking for at least 6 months’ trading history, so we can fund younger businesses too. We need to get an idea of your trading and credit history. If you work closely with your accountants and can get some cash forecasts then that also helps inform our decision on eligibility. The more we know, the better. The strength of your debtors is really important for us to know.
It’s crucial to note that you need to sell goods or services to other businesses to access invoice financing. If you’re looking to unlock the cash held up in your invoices then you might think about applying for our CBILS revolving credit facility. However, if you sell directly to customers then a quick cash injection through a CBILS loan could help. Loans can obviously help B2B brands too, so don't be afraid to think about using both. You can take out a number of different CBILS facilities.
Control of your cash flow is the most important thing to your survival right now, more than ever before. Plan in small increments for the future and know what is out there to support you, whether it's government schemes, local schemes through your banks, or even through fintechs like MarketFinance.
Your financial advisors and accountants are the best place to find help. It’s their business to be aware of all the available options, resources and schemes that can help you out. Stay in touch and keep connected: you don’t have to work this out alone. Having worked with so many customers in the fashion industry, the team at SupplyCompass is well versed in the problems these businesses face. The network they’ve created of SMEs is a really useful tool to expand your opportunities.
And when you know which scheme is right, act quickly because they won't be around forever. The current 12-month payment holiday on fees and interest is only available if you apply for CBILS facilities before 31 January. You don’t have to have completed your application by this date but you do need to start it. And once you factor in the festive break, that only leaves a few weeks left to access the scheme.
If you’d like to watch the recording in full then you can download it from Zoom here. Interested in the financial options available? Head to marketfinance.com to find out more about what we can offer and to supplycompass.com to understand how your fashion brand can benefit from a production platform.