The article confirms that the conventional wisdom that small businesses would lead us out of this Recession hasn’t proved to be as true as we’d like.  Banks continue to hold purse straps tight, despite government pressure, and many big businesses are putting the squeeze on smaller companies by paying their bills more slowly – as a matter of policy.

Once primarily used as alternative financing for the garment district in the United States, factoring has broadened its appeal across sectors. According to the Wall Street Journal’s How to Guide for Small Business Funding, “now billions of dollars in accounts receivable flow through factors each year, many of whom specialize in particular industries such as trucking, construction or health care. Some companies use it as a stop-gap measure to temporary meet cash-flow needs. Others prefer factoring to banks, which often require more paperwork, or other outside investors, who may want a piece of the business.”

One advantage that both Costco and the WSJ touch upon is the ability for a company to get help with collections – a time-consuming task that keeps key personnel away from selling their merchandise and growing their businesses. Costco also advises – as we do – that factors, experienced with overseas suppliers and purchasers, can also be a great help when navigating through the paperwork of international business.

To read more:   Costco Connection, June issue www.costcoconnection.com
Wall St. Journal’s How to Guides for Small Business: www.guides.wsj.com/small-business/…/how-to-use-factoring-for-cash-flow

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It’s clear to all of us manufacturers and distributors have been stripping overheads and cutting margins to the bone for the past two years. Our clients are telling us there really is no capacity to soak up any more margin pressure. Price hikes are definitely on the horizon.

To keep your relationships strong and your company growing, begin now telegraphing your circumstances and setting expectations for forthcoming seasons. If the Recession taught us anything, it’s that it is never good to ignore early warning signs.

Analyze how rising prices from your suppliers and the demand dynamic of your customers’ business will affect your bottom line and start adjusting appropriately now. The trick is to get your prices up more than your costs without damaging your demand. Not an easy trick to pull off by any stretch. Buyer relationships will be key.

Also, take a fresh look at the product you’re delivering. As price tags go up, quality and design will be strong differentiators for consumer demand. Inflation will weed out inferior products with bland design, taking some of the stodginess out of the market and opening up opportunities for design-driven products.

I remain optimistic that overall demand will continue to recover in 2011 as consumers move back into traditional buying patterns and eventually get used to paying more for goods.

Why are some of the top retailers, like Costco and Target, beating their own November projections? And will this mean across-the-board wins for the fourth quarter? Highly unlikely.  We still see some softness and there will likely still be some losers this holiday season. We predict those apparel companies, and the retailers they serve, that will continue to do well throughout December did a number of things right preparing for Q4.

•  •  They managed sell-through masterfully. Our apparel clients who are performing well didn’t believe the hype back in June. They based their orders on past performance during more uncertain times. They only dealt with retailers that proved they could move product, even during the Recession.
• •  They educated new buyers. The downturn caused many retailers to cut back on or consolidate buying departments; those left were covering larger distribution areas that weren’t as familiar to them. Clients who trusted their own instincts instead of relying on inexperienced buyers to manage their inventory distribution will likely do better than their competitors.
• •  They didn’t discount luxury brands. Once a luxury brand is found in a deep-discount bin in January, it can take years to regain its luster. Those selling high-priced brands are having the most success when they stay firm on price, understanding the brand’s aspirational qualities and conducting its business accordingly. To move additional product, they created  sub-brands at a new lower price point or moved product overseas, if necessary, leaving the aspirational flagship or ‘halo” brand intact. In fact some premium brand price points have been moved up despite the Recession to create room for the sub brand. There is very good money to be made at the value end of the market, but a company’s costs/margins have to stack up and they have to move more product. They also need to understand the distribution chain intimately.
• •  They micro-managed to create January cash flow. The post-Christmas period is the cash flow for the business.   Those apparel companies who will be best prepared for 2011 will not have overextended themselves with chains that went into this season still struggling from last year. They have a good understanding of the post holiday cashflow coming from their customers, having ironed out all supply and logistics problems ahead of the holiday.

It will be interesting to see the consumer spending patterns this holiday – especially the final split between buying presents for others and buying for themselves.  It’s then when we’ll get a good picture of pent up demand for discretionary personal spending after a long period of austerity.

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Reports show that in August manufacturing in the U.S. expanded for the thirteenth straight month in a row, giving Wall Street and economists alike hope that this recovery will not flatline. U.S. manufacturers with distribution channels in more robust international markets like China led this growth. Our performance bears out this trend. We’ve seen a healthy uptick in our export finance product; we provided funding for six new clients last month.

Foreign market demand for U.S.-manufactured goods has appeared to give domestic businesses more confidence to begin investing again in capital equipment and supplies. The days of slashing inventory that characterized the darkest days of the Recession have subsided.

Many manufacturers, however, are still holding back from investing in their businesses or exporting their goods to jump-start growth. We encourage you to set aside your fears and educate yourselves about the growth opportunities before you right now. Don’t let your competition get a head start.

Want to learn more about international trade? Check out our International Trade Finance Reference Guide for information about who should export, frequently used terms, examples and more.

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Scraping my memory back to the joyous days of economics classes and the wonders of “propensities to spend” and other snooze inducing words, I do recall one bedrock principle. Anglo-Saxons either side of the pond like to spend money, preferably money we don’t have and may never have. This wonderful philosophy has fueled our economies for decades. Is this the start of a new leaning towards saving, or us all getting our individual houses in order?

For the small business sector this is a flag on play as many provide services to consumers or to business clients themselves serving the consumer. One way or another what we collectively spend ties into what we can earn. This should be an area to watch; ultimately, I think once born a spender it is hard to give up and this is our way of waiting for the signs of better times. I would be interested in your thoughts.

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