Wednesday, 15 May 2013 14:41

Late Payment 'Must be Stopped' in Fashion Industry

Some of the most desirable fashion brands make less desirable customers, due to poor payment practices and frequent late payment, according to an industry news provider.

Business of Fashion spoke to several budding young designers about their experiences of supplying retailers within the UK and abroad - and found widespread unrest about the likelihood of being paid on time, in full and in line with agreed terms.

 Imran Amed writes for the publication that "fashion is a cash flow intensive business", requiring careful handling so that periods of substantial costs do not become unmanageable while young designers are waiting for a new period of income to arrive.

"It can be up to six months after first incurring the costs of producing samples, putting on a show, ordering fabrics and manufacturing a collection before these young labels are actually paid the money that is owed to them by stored that have placed orders," he warns.

Despite this, he adds that some designers he has spoken to have faced particularly difficult payment processes with boutique stores in London and Milan, while international payments from Italy, Greece and Russia can be particularly unreliable.

London-based concept store LN-CC admitted to "some cash squeezes" taking place in the past, but stressed that they too are a young business, and are committed to being a responsible retailer and responsible purchaser in the years to come.

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Tackling late payments with fixed terms

The terms of payment agreed between a designer and a retailer can play a significant role in deciding how promptly the funds will be received.

Some larger fashion houses work on 'consignment' terms, meaning they only pay for items once they are sold, and return all unsold items to the designer without pay at the end of the season.

As well as putting the risk on the designer should their work go unsold, this also raises administrative issues, as the designer becomes responsible for chasing the retailers to ensure they are paid when their goods are sold - adding a further credit concern if one of those retailers should become insolvent in the meantime.

Some retailers put 60-day terms in place, but then extend these to 75-day terms without prior agreement, Business of Fashion reports, meaning designers face a wait of almost 11 weeks for their funds.

However, some are more conscientious about supporting their designers, and pay on 'net 30' terms, meaning full payment is made within 30 days - or at least promise partial payment within 30 days.

Incentivising prompt payment

In response to the Business of Fashion article, one Santa Monica resident commented that uneven cash flow is an issue at all levels in the supply chain - and that designers must do their part to meet delivery dates without delays.

The commenter, Madeleine Gallay, added that "no solvent shop would walk away from a designer on the basis of [net 60] being denied and would try to honour the more usual net 30" - or even net 10, if a discount were offered for doing so.

With this in mind, those working in the fashion industry might rightly hear alarm bells if a retailer is unable or unwilling to commit to fixed payment terms, or insists on receiving goods on consignment.

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