US Manufacturing Come-Back

Sadie Keljikian, Express Trade Capital

American companies are bringing manufacturing back to the US.

2017 has thus far proved complicated for retailers and US-based wholesalers and manufacturers. Retail shopping has hit a record low and the future of global trade is uncertain at best. President Trump is planning to enact a border adjustment tax as a financial slap on the wrist to companies who continue to outsource their manufacturing. US businesses, however, seem to be adjusting their practices ahead of the legal ramifications.

Businesses and local government officials across the country are watching the current administration closely. With so many proposed changes, several of which are quite drastic, Americans are concerned about if and how the changes will affect them personally and financially. In some cases, this means that companies are boycotting brands owned by the first family due to concerns of conflict of interest. In the case of manufacturing, however, US businesses seem to have no qualms about preemptively bringing their facilities back home.

Interestingly, the move to bring manufacturing jobs back to the US began before the election. In the last few years, businesses like GE and Ford have brought a significant portion of their production facilities back. It was a welcome reprieve for American manufacturing workers who have struggled since the turn of the millennium to find jobs.

Sources claim that companies were too focused on manufacturing costs in their efforts to offshore production in the 1990s and early 2000s. In fact, many report that domestic manufacturing is cheaper regardless of higher wages because businesses didn’t factor in freight costs, duties, and carrying costs of inventory. As it happens, these aspects usually make far more difference than manufacturing wages in total operational costs.

The movement to expand domestic manufacturing is not limited to central states, where American manufacturing was most active in the 20th century. The New York City Economic Development Corporation (NYCEDC), the Council of Fashion Designers of America (CFDA), and the Garment District Alliance have announced that they will collectively invest a $51.3 million package in the garment manufacturing industry in New York City. Mayor De Blasio has also made plans to expand manufacturing with a new complex, which is currently under construction in Sunset Park, Brooklyn.

The shift in priorities requires realistic and careful thought about how to reestablish a domestic manufacturing industry that provides quality jobs and affordable products. A lot of businesses are focusing their domestic manufacturing efforts on luxury goods and items that require specialized equipment. 3D print manufacturing is a perfect example of manufacturing that requires specialized skills and equipment, and thus could provide innovative products and specialized employment for domestic manufacturing workers.

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Selling on Open Terms

Sadie Keljikian, Express Trade Capital

When it comes to trade, wholesalers often have a considerable number of potential issues to confront. They need to account for manufacturing and shipping costs, logistical concerns, control the quality of their products, maintain good relationships with their customers, and ensure that they receive payment for every invoice. When selling goods to retailers, one of the more complex negotiations surrounds how and when the customer will pay, or the agreed payment terms.

Depending on the vendor and the customer, they will come to one of a variety of agreements. Generally, when the customer has reasonably good credit and/or a solid relationship with the vendor, they will prefer to use open terms. Open terms on an invoice mean that the customer has a particular time frame in which to pay, beginning on the invoice date. Some common terms are Net 7 (meaning payment is due 7 days from the invoice date), Net 10, Net 30 and so on up to Net 90.

An account with open payment terms is ideal for the customer, since they don’t have to pay until after they receive the order. This means that they can place large inventory orders regardless of cash flow and pay when they receive the order as expected. For vendors, however, selling on open terms can be a double-edged sword.

On the favorable side, selling on open terms can offer a competitive edge to vendors who find themselves struggling to gain new business, since most customers prefer to have an open account with their vendors. In addition, when customers buy on open terms, they tend to place larger orders than they would under COD (cash on delivery) or similar terms. If customers don’t pay on time, they will accrue interest and/or late fees on the past-due invoices, which means more revenue for the vendor when they eventually receive payment.

Less favorably, sales on open terms can be risky when made to customers who aren’t as trustworthy. There is no guarantee that the vendor receive payment on time or even reasonably close to the due date. If too many customers are delinquent in their payments for too long, the effect on the vendor’s revenue can be devastating. This is why many vendors who sell on open terms choose to factor their invoices, to provide a layer of protection for themselves and their open invoices.

If you decide to sell on open terms and are concerned that your customers may not pay on time or at all, factoring is an excellent solution. Non-recourse factoring protects businesses if their customers declare bankruptcy or are otherwise rendered insolvent. In non-recourse factoring agreements, the factor absorbs the risk of all invoices they purchase from you.

Open payment terms can be tricky to negotiate at first, but are an excellent option, provided that the right systems are in place. Vendors must keep track of their cash flow, whether that means carefully timing orders to ensure that payments supplement any deficiencies or, as mentioned, factoring your receivables. Overall, open accounts create a system that allows vendors to expand their client base immensely and keeps customers happy by allowing them ample time to pay.

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ETC Attends Top Trade Shows

This week, the Express Trade Capital team will attend several trade shows across the country. Here’s where you can find us:

International Home and Housewares Show (Chicago) – Established in 1927, the International Home and Housewares Show hosts over 2,100 exhibitors from over 45 countries, as well as over 62,000 attendees from over 125 countries. The show displays a wide variety of home goods, including furniture, lighting, appliances, and accessories.

ASD MarketWeek (Las Vegas) – Marketweek hosts nine trade shows, making it the largest selection in the country. It is held at the Las Vegas Convention Center and hosts more than 45,000 buyers from over 88 countries. The show includes beauty products, apparel, housewares, outdoor equipment, smoking accessories, and much more.

Global Pet Expo (Orlando) – The Global Pet Expo is hosted by the American Pet Products Association (APPA) and the Pet Industry Distributors Association. The expo hosts over a thousand exhibitors and buyers from 76 countries.

If you plan to attend any of these shows, find our representatives for detailed information about our services!

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Made in NY: Brooklyn Campus Announced

Sadie Keljikian, Express Trade Capital

Last month, Mayor De Blasio announced that the city will open a new design campus and manufacturing space for apparel, film and television in Sunset Park, Brooklyn. The Council of Fashion Designers of America is also involved in the development. The new space will be the latest addition to the city of New York’s Made in NY campaign.

New York City has a long and vibrant history in the garment manufacturing industry. Local manufacturing in the Garment District began more than 200 years ago, and was a massive source of employment for European immigrants beginning in the late nineteenth century. Production in the district peaked in 1950, when New York City apparel manufacturers employed 323,669 New Yorkers. However, in recent years, garments made in New York City are much harder to come by.

The industry began to shrink when sales of ready-made garments took favor over custom pieces, beginning in the mid-20th century. This combined with outsourced manufacturing jobs and exorbitant rent hikes in the Garment District (rent in the neighborhood has reportedly risen 38 percent since 2013) have meant that a number of businesses have had to find alternate accommodations.

The new, 300,000-square-foot space (equipped to host 25-35 tenants from the fashion industry alone) will be at Bush Terminal. Construction will cost approximately $136 million, according to De Blasio’s announcement. In conjunction with the new complex, the city also plans to expand the nearby Brooklyn Army Terminal Building. The terminal’s additional 500,000 square feet will be available this September.

Elected representatives in Sunset Park have some doubts about the plan. Brooklyn Borough President Eric Adams, along with City Council member Carlos Menchaca and Congress people Nydia Velasquez and Jerrold Nadler have reached out to the mayor. They ask that he is conscientious of the effects gentrification may have on the Sunset Park area, expressing concerns that long-term residents will be displaced by rent hikes brought on by the project.

De Blasio was able to subdue concerns to a degree with the promise that the campus will eventually create 1,500 permanent jobs. Construction on the buildings will take a few years and, according to sources, will employ more than 800 construction workers.

Local designers and manufacturers are eager to take advantage of the massive new space, which will provide cheaper rent than the Garment District can currently offer as well as state of the art technology. The space is set to open in 2020.

Read about Express Trade Capital’s trade finance solutions here.

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Express Trade Capital to Attend Natural Products Expo West!

Express Trade Capital is thrilled to announce that we will be attending the Natural Products Expo West in California this week!

The semiannual (bi-coastal) trade show features eco-friendly alternatives to standard products as well as home goods to help you reduce waste in your every day life.

The event will be held at the Anaheim Convention Center this weekend!.


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Factoring Checklist: What You Need and Why

David Estrakh and Sadie Keljikian, Express Trade Capital

You’ve done your research, vetted private lenders and banks, and found the funding arrangement you need. You’re ready to enter a factoring agreement. However, before you do, you should know that all factors will require some business and financial documentation before factoring your receivables. Here is a list of the materials you will need and why factors ask you for them.

  1. Factoring Application.

This is step one in your relationship with your factor. The application usually requires basic information, including the name of your business and officers, a description of the business, ownership structure and other general information that helps your factor get to know you professionally. Beyond surface details, the application will often ask you to provide the following: (a) your certificate of incorporation (or the equivalent), (b) federal ID number, (c) owner’s photo ID, or (d) other state or federal documentation. This is to verify your business’s details and protect the factor from fraud and wasting time on companies that are not a good fit.

  1. Customer List.

Although many factors include a section in their factoring application that allows you to write in your list of customers, this is sufficiently important to warrant its own section.  Since non-recourse factors rely on the quality of your receivables to provide advances against your invoices, it is of paramount concern that the debtors on those receivables (i.e. your customers) are credit worthy.  Although recourse factors are usually not as concerned as their non-recourse counterparts with the quality of customers comprising your receivables, all factors will want to have at least some idea of your customer base and their credit worthiness.

Non-recourse factors need to know because they are going to underwrite the credit of credit worthy customers and make a lending decision based on their credit determination.  Recourse factors need to know because they might adjust the amounts they are willing to fund based on your customer’s credit-worthiness and because they need to know how likely it is that the invoices will pay on their own to price their lending.  For example, if a recourse factor knows some accounts pay poorly, they know they will have to rely more heavily on their own client’s credit-worthiness to assure payment in the event of default.

  1. Corporate tax returns and financial statements.

Not all factors require a company’s tax returns and financial statements but it is a common request. As discussed, factoring companies and banks that provide receivables factoring are generally concerned first and foremost with the creditworthiness of the customers.  However, the client’s financial background is requested sometimes in order to verify sales volume and revenue. Also, recourse factors do want to see that your company is healthy enough to repay receivables advance if your customers default.  If your factor asks for corporate financial details, it is best to present a thorough audit performed by an independent third party accounting firm to provide maximum transparency.  Otherwise, at least make sure the information is clear and accurate or it may affect your lending arrangement and put you in default if the factor later discovers inaccuracies or impropriety.

  1. Current aging of accounts receivable.

This is an important part of the equation for several reasons. It provides your factor with a snapshot of your customer list, which is very important to your factor, since customers pay factors directly in most agreements. It also lets your factor know how timely your customers are with their payments and how much bad debt you carry as proportion of your receivables. Since factoring is lending against receivables, your customers’ credit is more important than yours, so it is vital that the customers whose invoices are being factored pay on time.  Since factoring prices depend on expected factoring volume, a good A/R should comport with your own assessment of expected annual sales.  If you ask your factor for a rate given to companies making $10 million or more in sales annually, then your receivables should be substantial enough to support that claim.

  1. Copies of any and all UCC filings on your Company.

This is crucial. Factors generally need to have first position liens on receivables and inventory since they are providing funding against these assets.  In order to secure their collateral, factors take a security interest in the assets classes they fund. A first position lien (or “security interest”) means that the factor has priority over anybody else to collect on or seize those assets. For example, if the factoring client declares bankruptcy, the factor is prioritized in benefitting from liquidation of the goods against which they have financed. For non-recourse factors, if the debtor on the receivables goes bankrupt, the lien allows the factor to claim payment of the receivable debt in bankruptcy court.  Thus, without a first position security interest, the factor has minimal security or protection in the event of default.

  1. Any current licensing agreements.

When you enter a factoring agreement, your factor relies on the value of the goods you sell. Consequently, should the value of your goods be damaged, your factor would be the one to suffer. If your goods are in violation of a copywrite or trademark, this directly impacts the value of your goods because you will not have a legal right to sell them. Even worse, the licensor may have a legal right to the goods or to legal damages.  Therefore, factors ask for any licensing agreements your company currently holds in order to confirm that you are not in violation of any licenses and thus, that your goods will retain their value.

Like anything, factoring requirements vary from one to the next, but the above should serve as a universal checklist for the most commonly requested pieces of documentation. When you sign on with your factor, do not be afraid to ask lots of questions, especially if you are being asked for any unusual or particularly sensitive information. A good factor will always be able to explain why they are requesting certain information or documentation and should be open to providing Non-Disclosure agreements under reasonable circumstances. If you’ve chosen your factor well, they will be very happy to educate and reassure you about the process.

Factor your receivables with Express Trade Capital.

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Big Brands Boycott Dhaka Apparel Summit

Sadie Keljikian, Express Trade Capital

Recent ethical difficulties in the Bangladesh garment manufacturing sector are discouraging global brands.

Bangladeshi garment manufacturers have been eagerly anticipating the second annual Dhaka Apparel Summit this Saturday. The event will be hosted by the
Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and was set to host representatives from numerous domestic and global brands. Bangladesh has been rapidly growing as a sourcing hub for several years and currently represents nearly 6% of the $450 billion global garment trade.

The summit was planned to demonstrate continuing growth in the Bangladeshi manufacturing sector, which has been a topic of heated debate since the infamous collapse of Rana Plaza in 2013. Unfortunately, difficulties in the sector continue to mount. Since December, garment factory workers in Bangladesh have been striking and demonstrating in Ashulia to demand a raise in the minimum wage, which currently stands at approximately $67 USD per month.

Response to the strikes is adding to the controversy, with reports of police and government officials harassing and suppressing unionized workers. Based on these reports, it seems that the efforts of the Bangladeshi government are in service of stifling manufacturing workers, rather than negotiating the union’s demands. As a result, numerous big-box retailers have backed out of the summit, fearing scrutiny from their customers. Companies that have chosen to skip the summit include H&M, Gap, Inditex (parent company of Zara), Tchibo, Next, C&A and VF Corporation.

The Ethical Trading Initiative is also boycotting the event. ETI’s Peter McAllister gave a statement, saying “ETI recognizes the importance of the Apparel Summit to the future of the ready-made garment sector in Bangladesh. Unfortunately, the current intimidation of workers and their representatives is at odds with a progressive industry looking to secure the sustainable development of the sector.”

Although McAllister isn’t planning on attending the summit this weekend, he plans to meet with stakeholders in Bangladesh to discuss improvements at a later date. The hope is that the collective financial impact of the boycott on the event and its contributors will encourage the Bangladeshi government and industry leaders to address the concerns of factory workers, rather than suppress them.

Across the board, businesses are feeling compelled to express their opinions through boycotts and donations in accordance with their mission. Boycotts in the apparel and service industry have become extraordinarily common, both on individual and corporate scales. In one such instance, activewear retailers including Patagonia and Polartec chose not to participate in Salt Lake City’s Outdoor Retailer trade show due to controversy surrounding the Bears Ears National Monument.

The summit will go ahead as planned, but eyes are on Bangladesh and their future action with regard to treatment of their employees.

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On Deck Capital Shares Plummet

After record losses in Q4, online lender On Deck Capital suffered a drop of as much as 24% in their shares Thursday morning. The abrupt drop led Tybourne Capital, the company’s largest shareholder, to sell its entire stake.

Since the company went public two years ago, it has yet to gain profitability and reported a loss of $85.5 million in 2016.

Read more from Wall Street Journal.

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Sears Fights On

Sadie Keljikian, Express Trade Capital

Sears has struggled for quite some time, but it seems that the retailer still has a few tricks up its sleeve.

Like many brick and mortar retailers, Sears has struggled against the drop in brick and mortar retail for more than a decade, most notably since the company merged with Kmart in 2005. After several attempts at staving off bankruptcy, including a $300 million financing contribution from Founder/CEO Eddie Lampert’s hedge fund, Sears has made an aggressive move to trim the fat from the national corporation. Although holiday retail sales were neither encouraging nor terribly underwhelming across the board, Sears saw their difficulties mount with a 10.3% drop in comparable-store sales in Q4 of 2016.

Sears may have been prompted to take more drastic action by the notably underwhelming winter holiday season, even by the recently fallen standards of Sears/Kmart sales. The company has announced that it plans to “streamline operations” in 2017 and reduce costs by at least $1 billion annually.

Sears has announced plans to cut costs by gathering some of its stores into a real estate investment trust, imposing sale prices on certain items, and additional raised debt from Lampert’s ESL Investments. So far, Sears has sold five full-line stores and two Sears Auto Centers for $72.5 million since the new year and engaged Eastdil Secured LLC to raise at least $1 billion in real estate sales. The initial effect of the retailer’s efforts certainly show, with stocks up 30% in early trading Friday morning, but some sources doubt that Sears can cut costs and boost sales enough to last long-term.

Jim Cramer of CNBC’s “Squawk on the Street” commented on Friday morning: “There’s always rabbits out of the hat with Sears. It’s always Eddie Lampert coming out and saying. ‘Listen, you bet against us, you’re making a mistake.’ It always lasts for as long as it takes to be able to see the next same-store sales numbers.”

Cramer’s point is that Sears has shown a remarkable ability to tread water through financially trying times, but usually doesn’t come up with a plan that will sustain the business long-term. He went on to say that the survival tactics won’t have any lasting effect if people still aren’t shopping at Sears.

Many of Sears Holdings Corp’s plans to keep stores open are a bit vague at present, so it is difficult to say whether the business will continue to focus on surviving, rather than implementing plans to thrive. Although Sears and Kmart have failed to turn a profit in more than a year, their actions in the last month may indicate a new willingness to succeed by whatever means necessary.

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Trade Finance vs. Bank Loans Part II: Your Options

Sadie Keljikian, Express Trade Capital

There are several varieties of trade finance that offer working capital flexibility well beyond that of a traditional bank loan. Whatever causes your particular cash-flow problems, chances are there is a trade finance solution perfectly suited to your needs.

Factoring and Purchase Order Financing are two of the most common varieties of trade financing. Both methods are ideal for vendors who sell large orders to retailers on open terms. Factoring is an agreement whereby you sell your open invoices to a company, known as the factor, and they then typically provide you with approximately 80% of the value of the invoices immediately. Your customer(s) then owe the factor the invoice total and you receive the remaining balance, minus factoring fees, when your customer pays your factor.

Factoring is an excellent solution for those who need payment for their outgoing orders immediately but are reluctant to decline offering open terms to their customers. Since factors usually advance funds based on a percentage of your invoices (i.e. your receivables) the credit line is only limited by how many invoices you can generate. Factoring allows you to fulfill as many large orders as you receive without worrying that your working capital will be held up or depleted by waiting to get paid on invoices.

Purchase order financing (also called “PO funding”) is similar, with some subtle differences. When you apply for PO funding, you must provide accurate, up-to-date purchase orders from your customers. Once the purchase orders are confirmed, you receive a percentage of the total value of the PO. Receiving payment ahead allows you to use those funds to pay for manufacturing and shipping costs which frees up your working capital, allowing you to take on more orders.

If your business has been hindered by suppliers, particularly if those suppliers are located internationally, a letter of credit may be the best solution for you. LCs replace deposits, cost of goods and shipping costs you provide to your suppliers and provide an extra layer of protection for both you and your supplier. A letter of credit functions somewhat similarly to an escrow in the sense that it assures the supplier of payment, but only on the condition that goods are shipped on time and received as expected.

Trade finance allows you and your business to grow and adapt by drastically increasing cash flow on multiple fronts. A growing business has more cash flow issues than most people realize and your company’s growth should be handled carefully, with the help of experts. Trade finance professionals understand that your business needs funding in order to operate and will not trap you in a cycle of debt and inflexible lending terms that will ultimately hurt your expanding business. By following a transactional model, trade financiers target funds to ensure that both the borrower and lender are made whole and protected all throughout.

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