Background
In 2015, a U.S. specialty outerwear clothing company (let’s call them “Skin Co”) inquired about our services. Skin Co was a major player in the garment industry for many years, with just over $20 Million in sales per year.
However, after one of their direct competitors went out of business, Skin Co received an unprecedented amount of orders, depleting their inventory and straining their capital to produce more inventory. If they could fulfill all these orders, Skin Co’s annual sales would spike to $30 Million; a 50% hike in revenue.
The Problem
As the number of back orders grew, Skin Co realized that their current supplier, while flexible with payment terms, was at capacity and could not increase its output. When reaching out to other suppliers of the same caliber, Skin Co found that all of them wanted finances settled pre-production.
A supplier usually demanded 20-40% of the order paid upfront with the remainder to be paid just before shipment. A few suppliers mentioned Letters of Credit as an alternative to up-front payment.
The Solution
After spending a few hours online, the president of Skin Co, Jane, came up with a short list of Letter of Credit issuers and brokers who specialized in providing Letters of Credit at lower costs and without the stringent capital requirements necessary to obtain Letters of Credit from banks. After speaking with several of our account executives, Jane felt our instruments were more flexible and better suited than our competitors’. She was especially fond of the advice and attention provided by our hands-on financial and legal specialists and the greater options and opportunities afforded by our large network of financial and supply chain contacts and issuing institutions.
Jane made a deal with a supplier and we issued Jane’s letter of credit within day of when Jane and her supplier agreed to the final terms of the Letter of Credit and gave us the order to proceed with issuance. The supplier accepted the credit and was able to borrow funds from their own bank by pledging the Letter of Credit as collateral. After producing and shipping the goods, the supplier provided us with the documents stipulated under the Letter of Credit’s terms, including a Bill of Lading, Commercial Invoice, and a Quality Inspection Certificate. After all terms were satisfied, we paid the supplier on Jane’s behalf.
By using our documentary Letters of Credit for the next few months, Skin Co was able to fill all the back orders and capture about 35% of its competitors’ market share. By year-end, Skin Co reached their target of $30 Million in revenue.
