Cash flow is one of those terms every wholesale brand knows well and probably feels a little anxious about from time to time.
If your business operates in apparel, footwear, accessories, or any seasonal manufacturing industry, managing cash flow effectively becomes especially tricky. You're constantly juggling payments and waiting on retailers to pay their invoices while simultaneously trying to secure your next round of products.
But don’t worry. There are effective ways to keep your cash flow smooth and predictable. We’ve rounded up some practical, real-world tips you can start implementing immediately.
One of the most impactful strategies for stabilizing cash flow is aligning your vendor payment terms with the terms you offer your retailers. For instance, if you're extending net 60-day terms to your retail buyers, try negotiating similar or longer terms from your suppliers.
Why is this important? Matching these payment terms helps ensure that money coming in aligns closely with money going out.
While it may seem tough to negotiate at first, it's worth opening a dialogue with your vendors. Many suppliers understand the seasonal nature of apparel and accessories and might be more flexible than you expect.
Not all vendors are created equal. Ideally, your vendors should have a solid understanding of the seasonality and unique cash flow challenges within the apparel, or your specific, industry.
Vendors who truly “get it” will often work with you to set payment terms that complement your selling cycles.
This partnership approach not only benefits your cash flow but also strengthens your supplier relationships. Communicate openly with your vendors about your specific financial timeline as many may be more flexible once they understand your needs.
Factoring sometimes gets a bad rap in wholesale circles, but it can be a powerful tool when used strategically.
Essentially, factoring involves selling your accounts receivable (the invoices owed by your retailers) to a third-party financial institution. You receive an immediate influx of cash, typically at a small discount, and the factoring company collects payments directly from your customers.
If you're sitting on a solid book of reliable retailer accounts, factoring can dramatically boost your short-term cash flow.
Look for reputable factoring companies that specialize in wholesale apparel or similar industries. These types of companies understand your unique business model and can offer terms that make sense for your business.
Want to incentivize your retail customers to pay you faster? Consider offering early payment discounts, such as "2/10 Net 30," meaning the retailer can take a 2% discount if they pay within 10 days, rather than waiting for the full 30-day term.
This type of incentive is particularly effective with retailers who consistently pay on time or have strong cash reserves. While it slightly reduces your margin, the benefit of receiving cash earlier often outweighs the discount given.
To effectively implement this strategy, closely analyze your retailer payment history. Target early-pay discounts to buyers who already demonstrate good payment habits, maximizing your returns without significantly impacting profitability.
Effective cash flow management for wholesale brands doesn’t need to feel overwhelming.
By strategically matching vendor and retailer payment terms, cultivating vendor relationships with companies who understand your seasonality, exploring factoring as a flexible financing option, and incentivizing early payments from reliable buyers, you can dramatically improve your cash flow situation.
If you want more tips to improve your cash flow, check out this other blog we wrote up with seven more tips to help you do just that.