Express Trade Capital’s feature in California Apparel News, February 2023 edition. Mark Bienstock weights in on 2023 climate for manufacturers, retailers and consumers.
”As a result of a difficult 2022 holiday-sales environment, apparel importers and manufacturers are facing dual issues going into 2023. First is bringing their inventory back to a more manageable level. Many companies were dealing with a logistical logjam of too many containers arriving at the same time as well as missing the current season. This forced the retail community to postpone or cancel many orders. The importing and manufacturing trades are still carrying elevated inventory, causing added margin compression to their bottom lines. Second, the rising interest-rate policy of the Federal Reserve to tame inflation is causing many in the apparel community to resize their respective entity structures as we are potentially heading into a recession. Cost containment throughout the entire manufacturing and selling ecosystem will be paramount to come out stronger once economic recovery is underway.”
At Express Trade Capital, we provide financing along with logistics solutions, and serve as your consultant – providing advice including:
– How to structure transactions for maximum profitability. – How to most efficiently move your goods from pickup to delivery to your customer. – How to manage cash flow and mitigate risk throughout the various stages of production and delivery.
This advisory capacity truly sets us apart from other financiers. It’s in our best interests to give you the best advice because our own profitability is determined by your success.
Every year, trade transactions exceeding US$2 trillion are conducted under UCP600, totaling some 11% of all import/export transactions.1 The primary goal of the UCP600 is to ease cross-border trade by providing global uniform rules regulating the issuance and usage of letters of credit (“LCs”).
To date, the UCP (“Uniform Customs and Practice for Documentary Credits”) rules are adopted in 175 countries. UCP rules are issued by the International Chamber of Commerce’s (ICC) commission on Banking Technique and Practice. It is important to note that the ICC is a private international organization of industry experts, not a governmental body. The UCP600 is arguably the most widely accepted set of private rules for international trade ever developed.
How is UCP600 different from previous UCP publications?
Since the UCP was first established in 1933, it underwent several revisions, each reflecting the evolution of trade finance practices across banking, insurance, and transport industries. The objective was to create a set of internationally uniform rules to remove confusion caused by individual countries promoting disparate laws and practices governing the use of letters of credit. By guiding banks and other players engaged in global trade, the UCP enables greater trust between multinational actors and drastically increases the reliability, frequency and efficiency of international trade transactions. As of today, the UCP600 is the latest published revision issued on July 1, 2007 and includes 39 Articles.
In contrast to previous UCP publications, UCP600 not only lays out guidelines, but also includes definitions (Article 2) and interpretations (Article 3) on how to apply certain provisions of the code. By providing clear, defined terms and information specifying the role of banks in letters of credit, UCP600 removes ambiguity and provides a more concise and precise set of regulations to govern LCs. As a result, compared to transactions governed by previous versions of the UCP, transactions conducted under UCP600 are more streamlined, less risky and require fewer amendments.
Aiming to adapt the evolving practice of submitting electronic documents under letters of credit, UCP600 introduced the eUCP which has 12 articles. The goal of the eUCP is to ‘accommodate presentation of electronic records alone or in combination with paper documents’.2 However, for a letter of credit to be subject to eUCP, it must explicitly indicate so in the instrument. Letters of credit subject to eUCP are also subject to UCP600 even if this is not explicitly stated in the letter of credit. If there is a conflict, eUCP will prevail in situations where it will produce a different result from UCP.
How is UCP600 beneficial for trade transactions?
1. UCP600 levels the playing field by creating one set of operating rules for all international parties. This makes trade more inclusive because it allows SMEs to participate in international markets and integrate global supply chains. SMEs can now rely on banks and counterparties to follow the UCP600 rather than relying on their network, market position, banking relationships and ability to exercise legal muscle, to hold sway over their trade partners when disputes arise.
2. UCP600 resolves disagreements without court intervention, providing more fair, cost-effective, and efficient global trade transactions. Banks and other LC issuing institutions can perform better as neutral third parties to decide issues that are resolved by the language of UCP600 rather than deferring and referring issues for resolution to courts for fear of incurring liability.
3. UCP600 clearly identifies the roles of parties involved and their responsibilities, reducing risk and increasing transparency and therefore speed for exporters and importers who otherwise would have no recourse beyond suing their trade partners and corresponding banks in courts of foreign jurisdiction.
4. A notable feature of UCP600 is the irrevocable nature of the letter of credit. An irrevocable letter of credit cannot be revoked by the issuing bank or at the request of the letter of credit applicant. It assures the parties involved that the guarantee offered by an LC cannot be rescinded once issued unless all parties mutually agree to cancel it. An LC is irrevocable by default, even if not explicitly stated.
For a letter of credit to adhere to UCP600, it must specify so (unless it states that it is subject to the eUCP in which case, both apply). This ensures that all parties involved understand how their performance under the instrument will be governed. If a transaction requires, certain parts of the UCP600 can be omitted but such exceptions must be specifically and unambiguously written into the LC.
If you would like to find out more about LCs, the UCP600 and how it could benefit your trade transactions, reach out to slava@expresstradecapital.com. A comprehensive understanding of UCP600 will help both small and large businesses mitigate risks and conquer new international markets.
To make sure your LCs are issued under UCP600, reach out to us. We issue LCs, SBLCs, BGs, RWAs, and Proof of Funds. Contact us to understand which instrument is best suited for your business needs.
Sources:
1. Collyer, Gary. Guide to Documentary Credits. The London Institute of Banking & Finance, 2017
2. International Chamber of Commerce. Supplement to the Uniform Customs and Practices for Documentary Credits for Electronic Presentations (eUCP), 2007
International Chamber of Commerce. Uniform Customs and Practices for Documentary Credits, Publication 600 (UCP600), 2007
As each new day unfolds during the current COVID-19 crisis,
we are continuing to keep you updated on important information that we believe
is relevant.
We encourage you to research all your options and reach out
to your account officer to discuss any issues you are facing and let us know
how we can help you during these challenging times.
Financial Assistance Programs
Due to the market disruption caused by the COVID-19 virus,
many stores are postponing, rejecting and even canceling orders, while others
are delaying payment on existing receivables. We understand that these issues
will cause cash flow problems for many of our clients.
There are federal, state and local public resources
available to help businesses that are experiencing COVID-19 issues:
• For assistance outside of New York, please check with your state and local agencies as well as local SBA offices (listed at the bottom of the SBA website provided)
Duty Extensions
US Customs and Border Protection is accepting requests for a
7-day duty payment extension. Interested parties should send requests (name of
importer and IOR#) to Director Randy Mitchell at randy.mitchell@cbp.dhs.gov.
The National Customs Brokers & Forwarders Association of
America (NCBFAA), an industry group serving importers and exporters, has asked
Customs for a 90-day tolling or deferral period, and Customs is considering the
request.
IRS Pushes Tax Date to July 15
At a press conference held late Friday, Treasury Secretary
Steven Mnuchin announced that the in addition to the extension on the Federal
tax payment deadline, the filing deadline has also been delayed by 90 days.
• This postponement applies to any individuals, trusts, estates, partnerships, associations, and companies or corporations.
• Taxpayers do not have to file Forms 4868 or 7004 for an extension.
• There is no limitation on the amount of the payment that may be postponed.
• No interest or penalty is due during the 90-day extension.
• Interest & penalties on postponed Federal income tax filings and payments will begin to accrue on July 16, 2020.
ETC Managing Director Mark Bienstock was featured in California Apparel News last week in their discussion of the slowing economy and how apparel companies can manage it. Click here to read the full article!
ETC Managing Director Mark Bienstock is featured in the latest issue of The Secured Lender as part of a discussion on modern developments and competition in receivables financing. Click here to learn about the latest developments and what the future holds for the factoring industry!
One of the most crucial components to effectively fund a
business is its credit history. Credit reports help lenders determine how
likely a business or individual is to repay their debt. While most individuals
are aware of their credit scores, too many don’t know where those numbers come
from or what details go into determining them, let alone how business credit is
measured. Here are some of the basics of building and maintaining good credit
as a business.
Simple steps to establishing a business’s
credit.
As a fledgling business owner, the thought of establishing
your business’s credit from square one may seem a bit daunting, but don’t be
discouraged. Most of the processes involved in establishing good credit will
serve you and your business in more ways than one.
First, you’ll need to either incorporate your business or form
an LLC to establish your business as a legal entity. Then, you’ll need to get
an employer identification number (EIN) from the federal government and open a
bank account on behalf of your business. This is essential to legitimizing your
business and ensuring that your personal and professional finances are
appropriately differentiated. There are corporate service providers that
can help with these steps if you feel ill-equipped or nervous.
Finally, you should register for a DUNS number with credit
reporting agency Dun & Bradstreet. A DUNS is a nine-digit number that
allows the agency to identify your business’s location and financial activity. Although
it isn’t absolutely necessary, a DUNS number will simplify financial reporting
on behalf of your business and allow creditors and suppliers to easily run a
credit check on your company. These steps will help you establish a transparent,
trustworthy business and taking them early will serve you well as your business
grows.
Business and personal credit reports are
different.
If you seek funding for your business, your personal credit may
not have much bearing unless you are the sole owner and your business is very
new. It’s also important to note that while personal credit scores range from
300 to 850, business credit scores usually range from 0 to 100. Lots of uninformed
entrepreneurs are shocked and confused to find a much lower number than
expected when they check their business’s credit score, so don’t fret.
It’s important to stay on top of your business’s credit and
ledger even if you don’t currently need funding, as you never know when you
might need a financial boost to seize a growth opportunity. The best way to
ensure that your business has optimal credit and financial records is to pay all
your bills (including utilities and rent on your workspace) consistently and on
time. The better your business’s credit, the more options you will have if you
decide to seek out funding. It is also important to note that credit reporting
is less consistent for businesses than for individuals. This means that creditors
will often ask to see a more thorough history of your business’s finances than
you might expect, so even small delinquencies are likely to show up.
If your business’s credit is compromised, don’t
panic!
Although your business’s credit score is important, a
temporarily low score isn’t necessarily a death sentence. Low credit scores are
usually a symptom of overzealous borrowing and/or underwhelming revenues, but
they can be remedied over time. Provided you find a way to pay off your
business’s debt, its credit score will gradually recover. If you find that your
operational costs make it difficult for you to pay off your debt without
accruing more, there are alternate ways to bridge those financial gaps.
If production costs are straining
your working capital, consider seeking financing against your open purchase orders or invoices. The primary benefit of these kinds of financing is
that they generally rely on your retail customers’ creditworthiness rather than
your own. This means that rather than depleting your funds to produce large
orders and/or struggling to stay afloat while your customers take their time to
pay, you can receive the bulk of those funds upfront.
The other benefit is that in many cases, you don’t need to repay your
financier. Private lenders that offer financing against receivables will often collect
from your customers on your behalf, so you’ll save time as well as money.
In short, carefully managing your business’s credit and general financial activity affords you a lot of options to mitigate the challenges that come with growth. The more consistent your financial records, the better you will be able to handle changes and recover from any difficulty your business may face in the future.
Amazon is one of the world’s largest internet retailers by revenue and market capitalization, providing sellers and buyers with a central marketplace to conduct trade. The platform has grown so large that many financiers, including Amazon itself, have begun to market funding solutions directly to Amazon sellers.
Amazon built two web interfaces to accommodate its sellers: Seller Central and Vendor Central.
Vender Central is utilized by manufacturers and distributors
to sell to Amazon in bulk. Amazon will send weekly purchase orders for shipment
to various warehouses. Vendor Central customers are partnered with Amazon, who
will market and sell their vendors’ products to the best of their ability. Access to the program is invite only so not
all vendors can join Amazon’s Vendor
Central program.
However, Amazon vendors have several alternative routes for
financing. Since vendors receive purchase
orders from Amazon, they are financeable through traditional factoring and purchase order
(“P.O.”) funding operators. Factoring companies allow vendors to draw
funds against invoices to Amazon due in the future while PO funders give them
access to cash to pay for production against purchase orders issued by Amazon.
Amazon’s other program, Seller Central
allows merchants to market and sell their goods directly to customers. Sellers
can fulfill orders on their own or outsource fulfillment. Amazon allows sellers
to enroll in a program through which orders are fulfilled by Amazon (“FBA”). In FBA arrangements, Amazon takes on their
vendors’ shipping, customer service, and returns for every order.
Since sellers do not receive large purchase orders, but rather, small orders, customer by customer that must be fulfilled at once, they are not eligible for traditional PO funding operators. Depending on the vendor’s payment terms with Amazon, factoring may still be a viable option. In such cases, vendors who need further financing should seek cash lines against inventory or merchant cash advances.
Inventory financing is a type of asset-based lending where
sellers use their inventory as collateral for a revolving line of credit. An
amazon seller with his own inventory may assign his inventory to a financier
while waiting for sales. A financier may
cut a deal with Amazon to target sellers using the its FBA or other programs.
A merchant cash advance (or MCA) is a form of receivables financing where a seller takes on a cash loan by offering up a portion of future revenue until the loan and its fees are paid off. Advances are typically capped at one to two times monthly sales with a factor rate ranging from 1.14 to 1.48. In other words, a lender will take a small percentage of the merchant’s credit card revenue until 1.14-1.48 times the loan amount is paid off, depending on the MCA’s factor rate.
Amazon offers its own loan program modeled after inventory loans and merchant cash advances. With an APR of 6%-16%, an Amazon loan will be far less expensive than a merchant cash advance of similar size, which can have effective APRs above 100%. Instead of taking a percentage of sales revenue, Amazon takes fixed amounts from their sellers’ accounts over the course of twelve months or less, thus qualifying its instruments as short-term loans. By targeting only its own qualified merchants, Amazon can utilize its control of the seller’s proceeds and even inventory to ensure repayment. Amazon can also cherry pick preferred vendors based on whatever criteria Amazon believes best serves its risk appetite. In 2017 amazon issued $1 Billion in loans to its merchants.
So far, information on Amazon’s lending programs is scant. Little information is published on default rates, average funding amounts, and the programs are still young enough that available data is still in its infancy. For now, the verdict is still out on how effective the financing programs are for Amazon and its vendors.
Innovation, in every sense of the word, has taken over. The combination of consistent technological advances and a global market in flux has changed the culture and functionality of business operations on a global scale. One of the most remarkable results of this has been a rise in creative financing methods designed to serve new business models or those that were previously difficult to fund.
Although some funding options are universally available to
those with strong credit (i.e. SBA loans for new small businesses), managing a
business’s debt and retaining maximum equity can be a tricky balance,
particularly if you have lackluster credit or no credit at all. Fortunately, financiers
are creating new services and creatively applying existing ones to accommodate
businesses that previously didn’t exist or had limited access to sustainable funding.
Here are a few of the most accessible and adaptable forms of financing
available.
Inventory Financing
If you sell seasonally specific or highly specialized
products, inventory
financing is a great way to maintain your working capital
without giving up equity or accruing excessive debt. For example, let’s say you
sell specialty liqueurs year-round, but approximately 70% of your sales occur
in the month leading up to Valentine’s Day. Even with healthy annual sales volumes,
this inconsistency can complicate year-round operations and strain your
resources.
With inventory financing services, your financier will
simply store your unsold inventory in a secure third-party warehouse, then
provide you with a loan or line of credit, using the stored inventory as
collateral. Since you won’t need those bottles until next January, you’ll have
plenty of time to supplement your operational funds, pay off the funding you
receive, and distribute the goods in time for Valentine’s Day. Businesses that
benefit most from inventory financing are wholesalers who sell non-perishable
consumer goods, as they needn’t worry about a lack of quality control if their
inventory spends weeks or months in storage before distribution.
Business Line of
Credit
Although aline of credit
isn’t exactly a new method of
financing, its versatility makes it worth mentioning in this context. Since a
massive proportion of new businesses don’t sell tangible goods, the lack of
readily available collateral can make it difficult for them to secure funding. Unsecured
lines of credit are specifically useful for this because, much like credit
cards, they don’t necessarily require traditional forms of collateral. Lines of
credit are also like credit cards in that if you consistently pay off your
balance, cash advances up to the full amount in your assigned credit line are
available to you at any time.
Equipment Financing
For businesses that sell perishable goods or don’t sell
goods at all, equipment financing is an attractive option. If your business
uses expensive appliances or computers, you may be eligible to receive a loan
or line of credit against your equipment, much the same way an individual would
against a car or real property. Provided that the value of your equipment is
equal to or greater than your business’s financial need, this is one of the
simplest options. Most businesses in the service industry can take advantage of
this, including some that are particularly difficult to finance like restaurants,
medical practices, laundromats, and factories.
Short or Medium-Term Loans
Short or medium-term loans from private lenders are a
somewhat expensive option, but they can be extremely useful if your business
needs cash immediately and can pay it back very quickly. These loans are
generally approved within a day and as a result, have higher interest rates
than a standard bank loan would. If you receive a large wholesale order for
which you expect to receive payment immediately, a short/medium-term loan can
provide you with the cash you need to produce and ship the goods and bridge the
financial gap that can occur when you have to pay to fulfill an order before
you receive any payment from your customer. There are a few ways to address
this problem, but if timeliness takes priority over cost, this kind of loan is
the best choice.
Purchase Order
Financing
If you’re dealing with the cost prohibitive nature of production, but don’t have particularly good credit, purchase order financing might be your best option. Purchase order financing (sometimes called “PO funding”) relies on the creditworthiness of your customers rather than that of your own business. You receive a cash advance against confirmed, open purchase orders to help pay for production of the orders in question. This kind of financing also allows significant flexibility and can combine with other financial arrangements like receivables financing. This means you can easily establish a seamless system that allows you to fulfill orders quickly and consistently without potentially draining your operational funds or accruing more debt than you can manage.
In short, funding options have never been more plentiful. If
your business needs a financial boost, there is likely a perfect solution to
your needs and limitations. Be sure to research your options and choose a reputable
lender who will walk you through its process and fees to ensure
that you get the best solution for your business and budget.
The current government shutdown is the subject of nation-wide distress for myriad reasons. Sources are reporting that the shutdown, which is officially the longest in US history, has delayed public services like tax refunds, food, beverage and aviation product safety inspections, and millions of dollars in Small Business Association loans.
Generally, the SBA handles approximately $200 million in loans
daily, but since the shutdown began, they’ve been unable to provide any
financing aside from disaster assistance. As a result, hundreds of small
businesses nationwide have waited a month for vital funds to help them grow and
operate.
While many of the delayed loans are relatively small
amounts, nearly 40% of them are known as 504 loans. These are meant to help
business owners purchase real estate or costly equipment and can amount to $20
million or more. Regardless of quantity, many small business owners who rely on
these loans are wondering how to bridge the gap until SBA loans are readily
available again. The answer depends on where each business falls in the wide
variety of industries the SBA serves.
Substituting these loans directly is tricky. If you or your
business have very good credit, you may be able to replace your SBA loan with a
regular bank loan, but it will likely take at least 60 days to reach you, which
is decidedly unhelpful when speed is a priority.
We’ve discussed creative
financing methods before, but not in terms of which methods are
fastest. Depending on your budget, there are a few options that will give you
access to quick funding for your business:
Factoring your receivables.
If you’re selling goods to creditworthy retailers, you can
receive financing
against your unpaid invoices. Provided you have all necessary
materials and enough volume to qualify, you may receive funds within a day or
two with this method.
Finance your purchase orders.
Purchase
order financing (or PO financing) is a method designed precisely
for wholesalers who need help covering production and shipping costs while they
wait for their customers to pay. So, if you have purchase orders from
creditworthy customers and need to bolster your business’s funds, PO financing
is a great option.
Borrow against your unsold inventory.
If you have a stockpile of unsold inventory and a solid
track record of consistent sales, you can borrow
against your unsold inventory. This can take slightly longer
than financing against your receivables or purchase orders since it requires a
field examination (as do any lending arrangements involving goods, equipment,
or real estate), but can be a highly useful tool if you find yourself in a slow
season.
Enter a merchant cash advance agreement.
If your customers pay you with credit or debit cards
regularly, you may want to consider merchant cash advance options. Merchant
cash advance arrangements, or MCAs, aren’t technically considered loans, but
operate in a very similar way. At the onset, you receive a lump sum in exchange
for a percentage of your future credit/debit card sales. With an MCA, you will
receive funds very quickly, but it is important to note that this is by far the
most expensive option, as interest tends to run extremely high among MCAs and
compounds over time.
There are numerous ways to handle an unexpected lag in your business’s operational funds, but be careful not to let an urgent situation lead you to poor lending choices that could hurt you down the road.
In 1961, Ralph Cordiner, then chairman of General Electric, published a paper on the importance of private investment into space. Amid a cold war between the world’s super powers, Mr. Cordiner thought it prudent that the United States, as a proponent of capitalism, should beat the Russians in space not through government spending, but through private sector investment.
Since there was little economic incentive in space at the
time, Mr. Cordiner’s vision did not play out. However, his words did not fall
on deaf ears. With the rise of telecommunications came the first surge of
investment into the fledgling space industry. Since getting to space was very
expensive, the industry grew on the shoulders of telecommunications giants and
the equally large corporations who supported them.
The idea that space is only accessible to governments and
telecommunication elites changed drastically ten years ago with two
developments: the private launcher and the cube satellite.
SpaceX
Space Exploration Technologies, now known as SpaceX, was a
dream lead by PayPal founder Elon Musk. By 2008, SpaceX had run out of money
and was on the brink of collapse. Then, without a feasible launch plan, NASA
awarded SpaceX a $1.6 billion contract to resupply the International Space
Station. Upon fulfilling the contract, SpaceX proved that it can launch cargo
into space at a fraction of the cost of other government-funded launchers.
Since then, other privately-funded launch companies have entered the space market
though SpaceX remains the lowest cost launch provider, sending cargo into orbit
for as little as $2,500 per kilogram.
CubeSat
The CubeSat was designed in 1999 by Jordi Puig-Suari and Bob
Twiggs in an attempt to standardize satellite design. Within the CubeSat model,
satellites are built to fit precisely into 10 cubic centimeter units: A 1U
satellite would measure 10 x 10 x 10 cm, a 2U satellite would measure 10 x 10 x
20 cm, and so on.
The concept was relatively unutilized until 2013, when 88
CubeSats when up into orbit. Dropping launch costs, combined with ride sharing
services which aggregate many satellites in on launch, drastically reduced the
cost of launching satellites for people and institutions without much funding. In the short period of a few years, even
public high school science clubs are now able to build and launch their
satellites into space.
Today, CubeSats are fitted with receivers, cameras, mirrors,
and other sensors, which collect data and relay information to other satellites
or back to earth. In the past few years, a growing number of governments and
business have awarded contracts to smaller and mid-sized entrepreneurs to build
and launch satellites for a variety of purposes including tracking endangered
species, forecasting weather, valuing agricultural land, and aiding in
archeological digs. This marks a significant
shift in the space industry landscape.
The space space has grown from being the exclusive domain of mega
corporations and large publicly funded government entities with immense
resources to include smaller governments and businesses. The industry is wide open for participants
and innovators of all sizes.
Conclusion
Lowered launch costs and standardized satellite production have made space accessible to everyone from a telecommunications billionaire, to an entrepreneur who grew up dreaming of exploration, to a high school student who may very well realize their extraterrestrial aspirations while still in school. Within a few short decades, Ralph Cordiner’s dream of a privately funded space industry is finally becoming a reality.
