The global footwear market totaled about $200 billion in 2014 and will grow to about $220 billion by 2020. This according to a recent report from Transparency Market Research. That will translate into about 11 billion pairs of shoes, boots, casual and athletic footwear by 2020. Athletic and performance footwear has been dominating the growth in this industry, with online sales growth compensating for declines in in-store sales for some categories of footwear. These trends are expected to continue in the years immediately ahead.
If you are a footwear importer or distributor, you, of course, want to take advantage of the continued growth in this huge market. At the same time, many small footwear importers and distributor often do not have the ready cash as working capital to support the growth they wish to achieve. That’s often the case when their end customers delay payment for 60 to 90 days or longer.
Since so much of the world’s footwear is produced outside of the U.S., American footwear distributors are typically dealing with imported goods.
As a distributor or importer, of course, you don’t want to be in a position to turn down an order. Simply because of a shortage of working capital. And you don’t have to – the solution is to import financing with purchase order funding.
Here’s how the Purchase Order Funding works:
When you receive a purchase order for footwear from a creditworthy customer, a purchase order financing firm checks the customer’s credit. If it’s good, your purchase order financing firm establishes a letter of credit or bank draft to pay the manufacturer of the goods.
The payment is made against the purchase order – even before an invoice is prepared. After this, the manufacturer then ships the footwear to you, the importer, in the U.S. If your customer pays immediately, the financing firm collects the payment. Additionally, they will take a fee for its services, and remit the balance of the profit to you.
If, as is more likely, your customer pays on terms, the financing firm may then factor the customer’s invoice. As such, this will be providing you with an advance of perhaps 75%-90% of the invoice. Once your customer pays down the invoice, the financing firm will remit the balance of the invoice, less a fee for its factoring service.
Paragon Financial has been providing working capital solutions to footwear companies just like yours for 25 years. We understand the footwear business, and, as your financing partner, we will get to understand your distinct business as well.
As a particular form of financing, purchase order funding allows you to take advantage of larger orders that you might not be able to. This is because of a shortage of cash flow. Using this financing tool, your working capital can grow as your business grows. This financing alternative also offers trade credit protection in the event of a customer’s non-payment.
