Sewing Up Your Export Business: How Invoice Financing Can Help the Garment Industry


For many years, the garment industry has faced working capital and economic uncertainty challenges. However, as more businesses rise and customers become more accustomed to a wide variety of options, textile companies face even more challenges in maintaining their businesses.  

Here, we will explore how invoice financing can help your textile export business overcome cash flow and working capital challenges and the different types of invoice financing you can use.

Common Working Capital Challenges in the Garment Industry

The garment industry has experienced working capital challenges for years. Still, as the cost of living rises and economic pressure continues to push on families worldwide, these challenges are only expected to increase.

Here are some of the most common challenges textile exporting companies face today:

  • Excess and perishable inventory
  • Unreliable demand for products
  • Ever-changing trends and interests in textile products
  • Lack of efficient tracking and management systems
  • Rising distrust from customers
  • Delayed customer payments due to extended payment terms
  • Sustainability goals and projects
  • Increasing international competition in the garment industry

How Invoice Financing Can Help Textile Exports

Since many of the largest challenges of textile exporting businesses revolve around insufficient cash flow, you may wonder what options you have to increase this cash flow. Of course, many people turn to traditional banking solutions, such as applying for loans and additional lines of credit, and stop their search there. But, another solution may even be more effective (and easier to get) than traditional banking solutions. This solution is called invoice financing.

But before we dive deeply into what invoice financing is, you likely want to know how invoice financing can help your business overcome the challenges mentioned above.

Fast Access to Funds

Invoice financing is much quicker to acquire than traditional loans, making it an excellent option for businesses that need capital quickly. Similarly, it helps your business get the capital you need quickly so that you can cover payroll, pay your suppliers, and keep up with bills and other expenses without waiting for customers who are paying in instalments or delayed due to other payment terms.

Alleviates Cash Flow Problems Due to Slow Customer Payments

With the increasing customer expectation of extended payment term options and other payment delays due to payment conditions, the garment industry constantly faces cash flow challenges. This is especially true for textile exporting businesses that ship overseas, such as the many textile businesses in India and Bangladesh. Products shipped overseas can take a long time to deliver due to international shipping hoops and customs. This can delay when you receive payment for a product and make it hard to keep up with payroll, bills, and paying suppliers.

Invoice financing is a great way to circumvent these challenges by accessing the funds you are owed when you need them without waiting for your customers to completely pay them off.

Easier to Attain

Traditional banking solutions, like loans, are very challenging to get. A person must have a long operational history with the bank they are requesting the loan from, a good credit history, a minimum revenue, and more. Even for businesses with a few different bank accounts, the options will be limited, and if you do not like the loan terms, you are out of luck.

On the other hand, invoice financing is offered from many different platforms and third-party companies, and you do not need to have a long-standing history with the company to use this service. However, you need to have an existing trade history with the potential provider to establish a clear track record.

Low Risk

While, as with any type of financial solution, invoice financing is not 100% risk-free, it is, on average, much less risky than traditional banking solutions — such as loans or lines of credit.

This is because, unlike traditional banking solutions, invoice financing uses the money you are already owed (your accounts receivable) as collateral. The benefit of this is that you know you can pay off any loan once your customers pay your invoices in full.  

What Exactly Is Invoice Financing?

Invoice financing, also known as account receivable financing, refers to the process of borrowing money using your outstanding accounts receivables as collateral. Put simply, it is a way to monetize your outstanding invoices.

This means that you will receive less money overall because some of the money you would get from your invoices will go to the third party you sold it to to get money more quickly. This said it is a very effective way to get money more quickly and reliably.

Invoice financing is an umbrella term for any method of using your outstanding invoices to get cash immediately. There are two primary types of invoice financing that can be beneficial for textile export businesses. These are invoice discounting and invoice factoring. We’ll explore each of these below.

Invoice Discounting

Invoice discounting works quite like a normal loan, except instead of using other assets as collateral, you use your accounts receivable ledger. In this process, a third-party discounting company will lend you a percentage of the money listed in your ledger.

Then, when you receive full payments from your customers, you repay the loan in addition to an agreed-upon fee that covers the loan’s cost, interest, and risk.

Invoice Factoring

Invoice factoring allows you to get money upfront by “selling” your invoices to a third party at a discount. Typically, this means you will receive 80-90% of your invoice amount immediately.

Then, once your invoice is paid in full to the factoring company that is now in charge of the invoice, that third party will pay you the remaining amount of the invoice (minus their fee). Fees will differ from company to company.


Now that you understand the different types of invoice financing, you may wonder which is better for your textile export business. Unfortunately, there is no one-size-fits-all solution when it comes to invoice financing. In general, invoice discounting is the riskier of the two. As a result, it is typically used by larger businesses with a more reliable and steady customer base. Alternatively, smaller companies tend to prefer invoice factoring because it is more easily accessible. Ultimately, the right solution for your business will depend on your company’s circumstances and needs.

Both of these solutions can be more effective and less risky than traditional banking solutions, especially for industries like the garment industry, because one of the largest challenges of these industries is getting consistent and reliable cash flow. But, as mentioned above, there is no right or wrong answer regarding managing your finances. Instead, you must use your knowledge of your business and its circumstances to determine which solution best fits your business.