CM – Clothing Manufacturer

CM Clothing Manufacturers recently signed a fulfillment contract for one of the largest sales catalogue companies in the nation. The reputation and customer base of this catalogue wholesaler are impressive and being able to establish a relationship with it guaranteed substantial growth for CM’s business.

Given the nature of the catalogue wholesaler’s business, this new project was draining CM’s cash reserves to the point where paying for day to day operations was becoming a challenge, The catalogue sales company placed orders to CM, which proceeded to deliver on a timely basis but the wholesaler only paid for the clothes ordered once these had been shipped out to its retail clients. Part of the sales pitch presented by CM was that it would offer open credit terms. This situation posed a huge challenge for CM because it stretched the company’s cash conversion cycle to approxmately 60 days, thus preventing it from using its revenues to pay for monthly raw materials costs. Production at CM was stalling due to the company’s inability to repurchase goods. As a result, long term customers were starting to do business with other clothing manufacturers.

In addition to the cash flow challenges, CM’s board was worried about the fact that the company’s receivables portfolio was mainly comprised of bills to the catalogue wholesaler. This situation posed a risk to CM because if the catalogue merchant defaulted on payments, CM would not be able to withstand the resulting losses.
Measures Taken
Enter Summar, who by buying CM’s accounts receivable allowed the company to have immediate access to cash and also to receivables insurance.

Summar and CM worked together in creating a receivables purchase agreement which gave immediate liquidity to CM, thus allowing it to pay its vendors while mitigating the credit risk of its customers.

Results

Having a cash flow system which was structured upon the efficiency and quality of their work rather than on credit ratings, IT Solutions has grown its monthly revenues from about $5000 a month to about $100,000 a month in the span of one year.

Additionally, the company was able to maintain and attract new talent, thus creating a seasoned workforce capable of completing increasingly complex operations.

Having hired Summar to assist in the streamlining of cash flow allowed IT solutions to grow their business exponentially in a short period of time.