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Money Talks
Five Financial Tools For the Recovery
It looks like things are truly getting better, but are you and your business properly positioned to take advantage of improved conditions?
As economic conditions continue to show signs of improvement – both consumer confidence and jobs added have increased in recent months – concerns remain as businesses have not made enough investments and expansions to drive a full recovery.
In the specialty retail segment, this translates into cautious spending in tertiary markets. However, many of the primary markets are seeing increases in foot traffic and higher sales as well as gross margins that are stronger than in the same period last year — despite higher fuel prices due to turmoil in the Middle East.
As a result, financial experts are looking at the upcoming summer months for improvements in consumer spending in the specialty retail market as well as continued loosening of the credit markets.
So the question is: How is your business positioned to handle these changing economic conditions, and what financial and business tools can you deploy to thrive in this market?
To get you thinking about some answers, take at look at these five key financial areas:
1. When it comes to commercial banking services, try shopping local and think about opportunities to refinance. And if you do, partnering with a local bank or credit union may be worthwhile. Credit unions in particular have increased their business banking services in recent years to serve neighborhood businesses just like yours.
The benefits to banking local are numerous, and include better service and more flexible terms. The best part is working face to face with lenders. One good place to start the conversation on which bank or credit union to choose is at your local chamber of commerce mixer or breakfast. There, you can troll for references and recommendations of commercial lending partners.
2. If you’re a vendor serving retailers in the specialty retail segment, you might want to consider using a factoring firm. By outsourcing your accounts receivables your company can increase cash flow while providing some credit protection as well as lower your operating costs. Taking loans out against the receivables is also doable, and offers a simple way to fund an expansion. Look for established factoring firms that intimately know the specialty apparel market.
3. Asset-based lending works similarly to factoring, but allows other assets to be considered in the funding against trade debt. It’s in this form of trade finance that working capital loans can be created. See the resource list (right) for some companies that can work with you on asset-based lending arrangements.
4. If you are concerned about your trade debt exposure, consider purchasing credit insurance. This is a financial tool that manages credit risk via a traditional financial insurance structure.
How popular is this form of financial risk mitigation? Well, credit insurance firm Coface says a recent market survey revealed that about 42 percent of those polled were using some form of credit insurance, which compares to about 32 percent of respondents in the same survey a year prior. Indeed, Coface just reported a huge gain in operating profit due to an “expansion in credit insurance.”
5. Credit financing firm Euler Hermes ACI reports that business insolvencies (bankruptcies including Chapter 11 reorganizations and Chapter 7s) will continue to decline in 2011. Insolvencies in 2010 totaled about 56,000 cases – still at a considerable high when compared to prior years. What does that mean for specialty retailers? Opportunity. If you survived the recent economic downturn that means your business is strong and it’s time to consider expan- sion before the market swings back up. This could include making capital improvements, opening another door or investing in additional marketing.
Make sure you and your business are ready to move forward as the recovery starts to pick up steam as the year progresses.
INSIDER TIPS: Financial resources you can use
1. Global Commercial Credit
www.gccrisk.com
2. Rosenthal & Rosenthal
www.rosenthalinc.com
3. Euler Hermes ACI
www.eulerhermes.us
4. Atradius
www.atradius.us
5. CIT Commercial Services
www.cit.com/products-and- services/trade-finance/commer- cial-services/
index.htm
6. Coface
www.coface-usa.com
7. Trade Risk Group
www.traderiskgroup.com
Arthur Zaczkiewicz
March/April 2011 9
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