Industry Focus Finance: The Opportunities and Challenges of International Sales

With more apparel companies looking to export overseas to boost revenues, how difficult is it to get factor financing on these overseas accounts, and what things should apparel labels be aware of when exporting?


Sydnee Breuer, Senior Vice President, Business Development, Rosenthal & Rosenthal

Sydnee Breuer, Senior Vice President/Business Development, Rosenthal & Rosenthal

In general, a factor will be willing to finance export receivables so long as the customer can be credit protected/credit insured. In addition to the usual credit information needed for domestic customers, export receivables would also depend on to which countries the client exports and the legal, political and social conditions in those countries.

Well-established companies in stable countries are more likely to be credit approved, whereas the companies in struggling economies are less likely to get factor approval.

Also, it’s generally easier to get credit information about bigger foreign distributors and large overseas retail chains, and, therefore, it’s easier to factor such accounts compared with smaller, mom-and-pop stores. Apparel companies should be aware of the laws, and social and political issues of countries in which they want to do business.


Mitch Cohen, Western Regional Manager, CIT Commercial Services

Mitch Cohen, Western Regional Manager, CIT Commercial Services

From CIT’s viewpoint, the apparel industry centered in Southern California does take a global approach to business. Many of our clients are seeking to expand internationally as they build a worldwide brand.

“Created in California” provides an excellent benefit since California companies are thought to be among the more innovative brands in the industry and the leaders in certain categories such as high-end denim. As a factoring leader, we understand the need to support our clients and their customers domestically and internationally.

Our clients distribute through many models to many countries, from licensing to distributors to selling individual retailers overseas. CIT has many different ways to obtain credit data internationally, including by going directly to the international retailer or working with one of our correspondent factoring relationships where we utilize a factor in that respective country to obtain the necessary information to help us mitigate and approve the credit.

Financing depends on both the model and the country. If we can underwrite the international customer’s financial ability to pay, we can typically include that account receivable into our factoring program’s borrowing base as we support our client’s international growth initiative.

A vendor should realize that obtaining credit data from overseas accounts could be a much slower process. Furthermore, the ability to get factor financing on these overseas accounts is directly affected by country risk.


Ron Garber, Executive Vice President and Regional Manager, First Capital

Ron Garber, Executive Vice President/Regional Manager, First Capital, Western Region

The determination as to whether a manufacturer can obtain factor advances on exports is essentially based on what form of payment methodology was established prior to shipment.

Were the exported goods shipped subject to a documentary or standby letter of credit, credit insurance policy, broker or agent intermediary, reciprocal arrangement with an international factor exchange such as FCI, open terms to a recognized major customer such as Walmart Canada or Costco Mexico, or any combination thereof?

Most factors will work with their client to provide advances under any of these arrangements, but the manufacturer must be aware of certain differences between domestic and foreign sales that are assigned.

Firstly, if a letter of credit is utilized, it must be issued by either a U.S. bank or subsidiary in U.S. dollars. If it is a documentary instrument, there will be very specific requirements that must be met to successfully negotiate the letter of credit.

I suggest that the manufacturer speak with their bank or lawyer to become familiar with these requirements. I suggest, if available, that a standby letter of credit be the way to go. They’re much less restrictive and require very little in the way of paperwork.

An insurance policy issued by a strong international company such as Coface or Atradius also can be used very effectively. They are less burdensome than a documentary letter of credit, but they might require an annual policy to cover all your accounts rather than a single order.

A trusted middleman such as a foreign broker or agent could provide the necessary comfort level to ship a customer on open account, but this would not be my preference. Some U.S. domestic factoring companies belong to a worldwide network of other factoring companies, such as FCI, who will provide counter-party risk for buyers located in their own country.

In those cases, your factor will obtain a guarantee for a specific foreign customer from a local factor whose financial wherewithal has been vetted by the exchange and determined to be able to meet its credit obligations.

Lastly, there is always the basic open-terms arrangement, but I would reserve that for only the most recognizable retailers in existence, such as Walmart, Target, Costco or Macy’s. If any of these methods are followed, it shouldn’t be difficult to convince your factor to provide financing, but keep in mind it will probably be more costly and certainly create a greater amount of time and paperwork to ensure timely collection in comparison to selling a customer around the corner.

Insofar as apparel labels, especially brands selling overseas, the best advice I can offer is to make sure you have retained a good trademark attorney to protect your interest in the event of knockoffs or name infringement of product that starts to infiltrate foreign markets. There are many opportunists out there who attempt to make a quick buck and believe the manufacturer won’t take the time or expense to prosecute.


Rob Greenspan, President and Chief Executive, Greenspan Consult Inc.

Rob Greenspan, Owner of Greenspan Consult Inc.

When exporting your products, you should first make certain you have done all the necessary legal due diligence to get your trademarks and trade names registered in each country where you will be selling.

You don’t want to find that you don’t own your trade name or trademarks where you are doing business. You might soon find out that someone else now owns your mark and they could prevent you from doing business in that country.

In terms of factor financing, many companies find distributors in the foreign countries. They sell exclusively to the distributors, who in turn sell to the local retailers. The distributors take and finance the credit risk on their sales. Typically, the U.S. exporter sells, at a discount, to the foreign distributor. The foreign distributor pays the U.S. exporter roughly 50 percent of the wholesale price before the goods are put into work. The remaining 50 percent is paid before the goods are shipped. In these types of cases, the U.S. exporter does not need any factor financing for their export sales.

If the U.S. exporters do ship their products to retailers in these countries, there are a number of ways they can protect themselves to ensure payment. Their U.S. factor may have factoring affiliates or have knowledge of other factors in the foreign country. If they do, their factor can help facilitate a factoring agreement for these sales.

Additionally, U.S. exporters can buy foreign credit insurance to protect themselves from any nonpayment issues or bad debts. There are a number of insurance companies that specialize in this type of coverage.


Sunnie Kim, President and Chief Executive, Hana Financial

Sunnie Kim, President and Chief Executive, Hana Financial

Actually, with more options available to companies looking to export—whether by traditional or non-traditional means—obtaining financing for those orders is easing [in difficulty].

However, the companies to which the manufacturers are selling do come into play. Obviously, Canada or some European countries are much easier to receive financing support versus other locations. Not just limited to apparel companies, but anyone exporting must be keenly aware of a multitude of issues, including the political stability, economic considerations, tariffs, culture, specifications and currency exchanges.


David Mault, Retail Credit Manager/Vice President, Prime Business Credit

David Mault, Retail Credit Manager/Vice President, Prime Business Credit

Shipping to international accounts has always carried an increased risk versus domestic apparel companies, and this has not changed in 2014. There are thus many variables that must be considered before shipping overseas and much to consider before financing the A/R. Of course, companies must be aware of the political risk and stability of the government associated with the country in which their customer is located and also avoid shipping to the many countries that are currently in the midst of severe financial crises. A company must also be aware of the country’s trade laws and regulations, potential tariffs and import fees, and foreign exchange rates that would increase their costs and negatively impact their margins.

Once an apparel label is comfortable with the country they will ship to, they then must look into the condition of the company itself. Of course, before exporting, a company should initially request prepayment before shipping, preferably by wire transfer, but if the customer insists on terms, then this requires a more thorough examination of the customer. This customer analysis is similar to what must be done on a domestic company, including thorough examination of its financial condition and operating history. Due to increased freight costs and shipping logistics, a history of returned merchandise and disputes is especially important when assessing an overseas account. Also, one must keep in mind that simply from a geographic standpoint, collections could become an issue should financial or other issues arise.

In recent years, it has become more difficult for apparel companies to obtain factor financing on these overseas accounts. The financing decision on these A/Rs is often dependent on the customer credit decision on the customer. If the account is credit approved then this provides assurances on the strength of the company and collectability of the A/R, and typically the funding on the A/R is at a percentage similar to the funding on a domestic account that has been credit approved. Due to an increasingly volatile international climate and issues related to the areas described above, overseas accounts are becoming more and more difficult to credit approve, thus limiting the potential for funding against their A/R. If orders are not approved and invoices factored at recourse, then it is difficult to fully fund against the A/R. Also, because of the increased amount of risk involved, we have seen a decrease in orders from international companies.

Apparel labels would be best served to take these and other things into consideration when contemplating whether to ship overseas and, as always, make the proper risk/reward decision that is in line with their philosophy and needs.


Robert Meyers,Chief Commercial Officer, Republic Business Credit

Robert Meyers, Managing Director for the West Coast, Bibby Financial Services

Some companies, such as Bibby Financial Services & DS Concepts, specialize in providing export factoring to new and established apparel companies located throughout the U.S. and Canada. Both firms regularly work with commercial finance companies and traditional banks to provide add-on, export-only credit lines where required if they are not comfortable with the overseas trading.

The finance options are very reduced on the international factoring side as several lenders will be uncomfortable with the credit risk or will offer reduced financing amounts.

Factoring internal customers can be easy for the correct lender, but they will typically need to make sure they are in approved countries without political/government risk.

Factoring overseas typically requires approved credit insurance limits for each specific customer you will trade with.

Factoring overseas is also typically done on receipt by the end customers versus on shipment, so funding is slightly delayed depending on the shipment method.

The terms offered by customers will vary by country, so thorough review of the vendor agreement and purchase orders is required—i.e., net 60, net 90 and sometimes longer depending on the country.

Understanding the currency involved and making sure your lender can receive payment in the major currencies such as euros and pounds sterling, the Japanese yen, etc.

Depending on where you are trading, lenders that maintain operational offices throughout the world can help collect debt in the local language and currency, utilizing the local customs as well.

Understand time-zone differences—for example, your lender needs to be able to collect debt in Asia despite the 14-hour time difference. Also, any import tax/duty obligations.


Donald Nunnari, Regional Manager, Merchant Factors Corp.

Don Nunnari, Regional Manager, Merchant Factors Corp.

It is not difficult to get financing from a factor on export receivables. We have clients selling throughout the world who get the security of getting paid by the factor along with financing to assist their cash flow.

Through the International Factors Chain (IFC) or other international consortiums of bank-owned factors, a seller can use a factor to credit check, guarantee and collect foreign receivables. Make sure your factor is aligned with international factors to provide this service.

Banks will work in conjunction with factors, whereby the factor guarantees the foreign receivables and the bank will lend against them. The seller should consult with their factor before exporting. They should discuss with the factor the countries they are thinking of exporting to. Ask questions such as, Does the factor know the creditworthiness of the distributor or store? How do they pay their bills, and will they be factor approved?

The seller must know the different terms and conditions for factoring in different countries throughout the world. They must read carefully any foreign amendment to their factoring agreement, which spells out the fees and coverage (like any insurance policy). U.S. territories—such as Puerto Rico, U.S. Virgin Islands and Guam—are factored the same as a U.S.-based buyer, normally with the same terms and fees. Canadian customers might be subject to an additional factor commission.

Sellers should know all of their options to grow their international business. They should be aware of currency risks. Selling in the past year to Argentina in pesos would have cost the seller about 40 percent in lost profit due to currency changes. It is highly recommended to bill the buyer in U.S. dollars.

Factoring your export accounts receivables, along with letters of credit and cash deposits, are very common ways to export and be assured you will be paid. Your factor should be able to assist you in handling letters of credit from your foreign customers, if necessary. Unless you are familiar and comfortable understanding documentary letters of credit from your customers, it’s best to consult with your factor.


Dave Reza, Senior Vice President, Milberg Factors

Dave Reza, Milberg Factors

It is not difficult to get financing for credit-approved receivables from foreign-account debtors. At Milberg Factors, we approve many foreign accounts based in Canada, Latin America, Western Europe and the Caribbean directly based on our knowledge of and experience with certain debtors.

In other countries, we partner with third-party credit-insurance carriers who provide us with coverage, which we in turn use to provide our clients with credit coverage and financing on export sales.

We recommend that clients engage either a local agent or importer/distributor to help ensure that all the requisite “i’s are dotted and t’s” are crossed.


Paul Schuldiner, Managing Director of Business Development, King Trade Capital

Paul Schuldiner, Managing Director, Business Development, King Trade Capital

It is important for the apparel company that is exporting to understand the customer base that they are selling to. Very often, U.S. apparel companies will work with local distributors who may or may not be able to be factored by either a U.S. factor, a foreign factor, or even have payment risk mitigated by credit insurance.

If the U.S. apparel company is selling direct to retailers in foreign countries, there should be an understanding of the local regulations, such as value-added taxes, local customs and import rules. More importantly, they should understand where title passes to the end customer (i.e., are the terms of sale FOB Asia or FOB USA for where the goods are made or does title pass to the end customer in the foreign country where the retailer or distributor is located?).

If a foreign customer can’t be factored or credit insured, the apparel exporter may want to consider selling on terms that require the foreign customer to provide a letter of credit to secure its purchases or sell on documents against payment terms where a bank can be used to release title documents against payment by the foreign customer.

The apparel exporter should work closely with its factor or trade finance source, an outside accountant and/or an attorney specializing in international trade. Lastly, a strong customs broker/freight forwarder who can assist in navigating the waters of exporting and assess business risk as well as credit risk of the foreign sales opportunities should be considered.


Ken Wengrod, President, FTC Commercial Corp.

Ken Wengrod, President, FTC Commercial Corp.

Financing shipments to customers in developed countries should be a non-issue. Lenders should also have a detailed understanding of international trade practices and be open minded to change with the times.

With the expansion of globalization, we apply similar rules of open credit extension and financing for international customers as we do for domestic customers.

There are many factors to consider when we look at the overseas customer, including financial condition, longevity in business, credit references, or payment history and terms of sale. As long as we can gather enough information about the overseas customer, it is not difficult to obtain financing against these accounts.

In today’s environment, customers around the world are seeking open credit terms and are very concerned with protecting their integrity and payment record. There are numerous methods of gathering information on foreign buyers to support clients’ sales and financing. Obviously, it’s much more difficult to apply the same set of rules against the customers in the developing countries. However, an organization such as U.S. EXIM Bank provides further assistance to lenders like us in this arena. FTC is one of the few authorized delegated lenders of the U.S. EXIM Bank, which provides various programs and guarantees lenders to encourage the financing of foreign accounts.

From my prospective, it’s not necessarily the ability of attracting financing for export sales that prevents the expansion but the aversion of U.S. companies to broaden their reach to international markets, where 95 percent of the customer base resides. In essence, they are limiting themselves and competing for only 5 percent of the world’s customers. Entrepreneurs who have expanded their international markets realize the strong benefits, including going direct to the foreign retailer/Internet sites or using a distributor. Today, Europe and Asia are craving apparel labels that represent the California lifestyle and also manufacture their products in the U.S.

For example, U.S. exporters need to understand that each country in the European Union represents different subcultures in terms of customer sizing, color preferences and paying habits. Also, the U.S. exporter needs to identify a contact person who is able to answer any questions about rules and regulations of the country they are planning to sell into. Finding and developing a close relationship with a specific contact within the Commercial Service at the U.S. Department of Commerce and with its customs broker is a first step to starting the export process. The Gold Key Program at the Commercial Service charges a nominal charge, and the U.S. government will provide data and vet buyers for the U.S. exporters. The current administration has placed a high priority on assisting U.S. companies to export and, in turn, increase jobs in the U.S.

The U.S. exporter should also be cautious about knockoffs. The European Union has tougher intellectual-property laws than the U.S. in terms of protecting designers. China is an entirely different story.

Many shrewd young contemporary designers are initially power branding their image/lifestyle in Europe and parts of Asia by selling to key accounts in that region. U.S. retailers visit those foreign accounts to scope out new directions and lines so that they can contact these U.S. designers to buy their merchandise at home, in the U.S.