Initial success produces its own challenges as a firm develops. Scott Reiss said the company is at that “critical point where orders are more than double those of the first season. We’re putting together packages and shopping at various factors in New York for additional financing. We have adequate cash flow to fund the sales and marketing side of the business, but are looking to factors to help with the letters of credit that are required for our factories.”
Stanley Officina, president of Sterling Factors Corp., noted: “The factoring industry is probably the best equipped to understand what [young designers] are going to need to get started in the business.”
Factoring can be an effective way to maintain steady cash flow running through a small operation, but all this presupposes that the designer already has the business up and running. Since factoring is primarily the business of purchasing accounts receivable, it is only an option for designers who have already secured financing to design, produce and sell a line of goods. Factoring can be a lifesaver once designers have shipped their wares to retailers and are awaiting payment for periods from 30 to 90 days or more.
The factor purchases from the designers the money owed to them for orders shipped and gives them a portion of their payment due up front. Later, the factor collects the remainder of the balance and, minus a percentage for its own coffers, gives the designers the rest of their due.
Due to client bases that are often large and varied, factors can also offer budding businesses insight into the industry and how their financial operations stack up to benchmark levels.
They can also offer some down-home advice. As Officina noted, young designers “should probably apprentice for a couple of years to see how the industry works. Not everybody can just jump out of the gate and be Liz Claiborne. It’s a very complicated business with many different aspects to learn that you just don’t pick up in design school or business school.”