The smarter solution: Revolving Credit for the Fashion Industry

5th October 2018

The fashion industry remains one of the great British success stories. The whole world watches the leading British designers, and the twice-annual London Fashion Week is arguably the industry’s biggest, with estimated orders of over £100 million. These events, where more than 250 top UK designers showcase their collections, reflect the importance of Spring/Summer and Autumn/Winter collections for both the Haute Couture and high street ends of the fashion business.

If a design house is to succeed, it must be able to provide these two collections each year and, in the case of many smaller operations, this will mean not just creating designs that will create interest and orders but preparing stock for sale through selected outlets. The industry works with a six-month lead time, beginning work on each collection before the previous season's range has reached the retailers.

A big financial burden

This workflow presents a sizable financial burden for independent designers.

“If a large retailer is selling your collection, they will invest in its manufacture. If you are producing made to measure, it is all handcraft. But for those of us in the middle, we have to pay for the team that turns sketches and concepts into designs, and for those designs to be turned into stock that is ready to sell.”

Even for smaller designers, the costs involved are substantial. Tying up investment in designs and stock for six months at a time requires a major investment, at a time when relatively little income will be coming in. It can mean restricting the growth of a successful design label - and while there is a place for exclusivity, designers expect to use small numbers to create demand, not restrict sales and revenue.

Finding a versatile solution

One designer with a growing reputation came to Rangewell to provide a financial solution which could offer the chance to support growth too.

“We were getting more interest each season, and we need to sell to it. We don’t expect to compete with high street retailers, but we do want to see our collection in more top-end retailers. That means we need to produce more garments each time, of course, without sacrificing quality.”

The business was cash-rich after each collection was sold, but in the run-up to the next season, they frequently found that funds were depleted.

“We manufacture in the UK. It is part of our brand values and one of the reasons why people love our clothes. It also means we can practically look over shoulders to ensure we get the quality we need. But it means our costs can be a little higher than the industry average.”

With many sectors, the answer for cash flow issues is Invoice Finance, where a lender will advance funds based on the value of invoices as they are issued. This means that the manufacturing business can have income when each batch is shipped. For our client, and the fashion industry, this would be less suitable, as a collection will not be released for months.

We saw that another solution would be necessary to provide the funding that the client needed.

In the past, it was common for fashion houses and many other businesses to use bank overdrafts to fill cash gaps. These were a versatile and very flexible arrangement that would allow account holders to withdraw cash that you didn’t have in your account as a loan. This could be used for a few days or a few weeks, or to deal with larger expenses. It was convenient, with no need for an application, and cost-effective - the bank would only charge for the cash withdrawn, and for the time they used it. However, since the financial crisis, new bank rules mean that the traditional overdraft may now be very difficult to obtain.

Do you need to replace a traditional overdraft? Do you want a reserve of credit to call on as you need it? Find out more about Revolving Credit Facilities or apply now.

Fortunately, the Alternative Finance market has grown to plug this gap with new funding solutions to offer the short-term funding that used to be provided by overdrafts. This includes Revolving Credit, also known as Overdraft Replacement.

With Overdraft Replacement no bank account is involved. Instead, the arrangement provides a line of credit and it is up to you how much of this reserve of credit you use. Like an overdraft, it will only mean a cost to you when you actually use the facility, based on the amount you draw down and the time that you hold it. You can repay what you daw down at any time, and the funds will be ready for use again.

We realised that this facility could be the perfect answer for our client, offering funds as her business depleted its own reserves, and allowing her to repay when new reserves came in.

“I didn’t want to take out a loan that would saddle me with monthly repayments - that would only make our cash problems worse. But a line of credit we could dip into when we needed to would be the perfect answer.”

£100,000 on demand

We helped arrange a line of credit with a reserve of £100,000. Rates will differ greatly between providers, so we searched the market for the most attractive arrangement, from a lender which understood the fashion industry.

It has already proved the answer to our client’s needs. It allowed her business to increase the number of several key designs for the last season, leading, ultimately, to increased sales and higher returns overall.

“This is a very competitive business, and you can’t stay in front of the fashion industry without the right funding. I am now certain that we have it.”

If your business faces short-term financial challenges, find out more about Revolving Credit or call the Rangewell team today.


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Richard Mitchell

Richard Mitchell

Content writer
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