Interview with Mr. Morgan Terigi, CEO and Co-founder, Incomlend

What are the challenges that SMEs in the textile industry face in the current landscape?

The COVID-19 pandemic has impacted almost all aspects of the textile industry, from demand to supply. Many small and medium enterprises (SMEs) are suffering from the long-term implications of the pandemic and the recurring government measures to curb infections. Some of the most critical and immediate challenges that we hear from our customers include the sharp decline in sales and cancelled orders due to the widespread closure of physical stores.

Furthermore, as garments are not categorised as essential goods and services, manufacturers and sourcing companies face mandated closure in many markets. This has caused significant disruption in supply chains, leading to difficulty in procuring raw materials and halting manufacturing operations.

These factors are resulting in greater credit risk and restricted cash flow for many SMEs in the sector. As their financial health weakens, it is more challenging for SMEs to navigate the volatility and ambiguity in supply-and-demand trends in the market and react to unforeseen situations, such as late payments, cancelled orders, or even a sudden surge in demand for their products.

 What are the key financial barriers confronting these SMEs?

Many SMEs in the textile industry are looking to bolster their financial health and agility to better weather the storm in the face of long-term economic uncertainty. However, many of them are often caught in a cycle where they cannot get the finance they require from larger, traditional banks. The main reason this happens is that SMEs sometimes struggle to prove creditworthiness. As many SMEs have been placed in weakened financial situations due to the ongoing crisis, they might get less support from the banks and be left unfinanced.

Traditionally, banks tend to extend the on boarding process for SMEs, which results in a slower turnaround time. Consequently, some SMEs wind up self-financing, which further limits their ability to grow their business.

 How can alternative funding solutions address these SMEs’ key challenges and position them for growth?

Today, we see more SMEs in the textile sector, such as FortuneX, break down these financial barriers by accessing alternative funding solutions. By reducing their reliance on banks and diversifying their access to funding, SMEs are future-proofing their business from any economic impact such as the current pandemic.

As an SME, Incomlend understands the value of having access to cash flow in a quick turnaround time and not being hampered by the long-drawn credit checks imposed by traditional banks. Alternative financing solutions can help SMEs liberate their working capital and recover their financial health. These are the foundational elements for SMEs to develop more resilient business operations. It also gives them the fiscal agility to seize new revenue opportunities, such as seasonal demand for sweaters during winter.

With faster access to working capital, SMEs can recover their operational expenses and execute plans with greater confidence and certainty. The improved cash flow will also allow them to finance their next production cycle and ramp up their output when the demand for their garments increases.

 What are the types of alternate funding solutions suitable for SMEs in the textile industry?

We strongly encourage SMEs in the textile industry to look into non-recourse financing options, such as the off-balance-sheet invoice financing that we offer. These can keep the debt-to-equity ratio low and preserve their borrowing capacity, further spreading their funding sources.

With invoice financing, these SMEs are effectively selling their invoices and obtaining finance without risk. SMEs, specifically exporters, can fund their export invoices by selling them at a discount rate in return for receiving early cash for their receivables. Besides liberating working capital, invoice factoring can also insulate SMEs from debtor credit risk, especially for SMEs in the Asia Pacific.             

 What is the potential market outlook for SMEs in the textile sector in the years to come?

The pandemic is here to stay, and we will continue to see economic uncertainty and disruption in the textile industry in the foreseeable future. Although governments worldwide rolled out policies and programmes, such as wage support, to help cushion the impact of the pandemic on SMEs, these measures will start to dwindle over time. Furthermore, a recent OCED report highlighted that many of these pandemic relief programmes have caused SMEs to accumulate debt. Consequently, there are concerns that if governments roll back their support measures too quickly, it can trigger a wave of bankruptcies among SMEs.

SMEs need to find ways to build financial resiliency through other means. The banks will still be pursuing the same path they have been walking for the last few years, reducing their trade finance exposure. Whether it is fintech or other alternative funding sources, the demand among SMEs in the textile industry will only continue to grow stronger.


Interview with Mr. Achint Bhagat, Director, FortuneX

What are the core problems that SMEs in the textile industry face?

Before the pandemic, we had a strong business pipeline and an excellent position to sustain our growth. We saw solid demand for apparel worldwide due to trends such as the rise of e-commerce, urbanization and increased disposable income.

However, the closure of brick-and-mortar retail stores and the drop in apparel sales during the pandemic have had significant repercussions across the entire garment supply chain. Some of our customers, who are apparel trading companies, experienced several cancelled orders during this period that impacted their cash flow.

What are the principal revenue obstacles that these SMEs face?

The repercussions across the entire garment supply chain have led to late payment for our receivables and raised the debtor credit risk for us. According to research by trade credit insurer at radius, late payments in the textile industry in Asia impacted 64% of the total value of B2B invoices. Late payments and credit risk can affect our ability to finance our next production cycle and lead to more revenue losses.

How can alternate financing solutions meet the key concerns of these SMEs and position them for expansion?

Incomlend offers the Invoicing Finance Programme that enables FortuneXto cash in an invoice as early as three days following the shipment of our products. The programme insulates us from credit risks and safeguards our financial health, which is especially vital as the retail space and demand for garments remain volatile due to the pandemic.

The alternative working capital solution allows us to retain our customers by offering more competitive payment terms. Our usual payment terms range from 30 to 60 days post the delivery of our receivables. Thanks to Incomlend, our customers now have the option of paying for the shipment’s invoice value up to 120 days later, alleviating the stress our key customers are facing concerning cash flow and strengthening our partnership.

What are the different sorts of various financing options available to SMEs in the textile sector?

We’re looking into more alternative funding solutions, particularly off-balance-sheet financing options, to provide us with the capital we need to place ourselves in a better growth position when the economy recovers without the heavy burden of a loan. Additionally, by diversifying our access to funding, we are laying a financial foundation that is more resistant to future disruption.

Our customers in the USA are already seeing retailers reinstating cancelled orders and placing new ones. With improved access to quick turnaround working capital, we can swiftly act on new orders or even increase our output to meet seasonal demands that allow us to capture new revenue streams and grow our business.

What is the prospective market forecast for textile SMEs in the coming years?

For buyers, risks will potentially become a vital factor when deciding on sourcing destinations and evaluating suppliers. Buyers will emphasis manufacturers’ production capabilities and efficiencies to mitigate risk and ensure a more reliable supply chain.

The pandemic could also accelerate the apparel industry’s technology adoption, leading to faster and more efficient production across the industry. Manufacturers will look for opportunities to advance their digitalization plans to respond better to rapidly evolving consumer demands. Those who succeed will have a substantial competitive advantage over their peers.

However, some manufacturers, especially SMEs, might not invest in technology in the near term due to the pandemic’s economic uncertainty and financial pressure. Again, this highlights the importance of having access to working capital and funds to pursue investments and opportunities to make a meaningful impact on their business.