Hula Global does not grant credit in the first couple of years of doing business because there are too many risks that cannot be managed without an established track record.
Right off the bat, there are financial, operational, and trust-related risks that can’t be determined for a new business. Credit, essentially, means offering a service that will be paid for down the line, similar to a loan or a debt.
Just as banks or other financial institutions wouldn’t give a loan to a new client, Hula Global doesn't provide credit to its new business partners.
At the start of the partnership, both Hula Global and the brand are learning to understand how each other does business. Both parties are assessing each other’s business reliability and communication.
Hula Global may have many brands to partner with, but assessing their financial stability, record of payments, and overall business reliability can only be done through the first year of partnership. Thus, the first year is an evaluation period for both parties.
From Hula Global's point of view, manufacturing and supplying apparel is about complex and considerable financial risks. Working with new clients, new apparel brands as clients require investments in raw materials, production and production planning, production process quality control, packaging, supply chain management, and logistics.
If Hula Global were to extend credit in the first year and the new brand went out of business or experienced financial mismanagement, cash flow issues, or failure to pay for a variety of reasons, Hula Global would be left with all of those costs.
This could affect Hula Global and all of its partner factories, and even other clients, who all depend on Hula Global for consistent operations.
The apparel industry remains very fast and very unpredictable. Hundreds of new apparel brands come up each year, and only a lucky few end up as big names in the industry.
Brand, and thus business, value, and reputation are the result of consistent consumer interest, spending capacity, economic stability, and unobtrusive supply cycles. Hula Global’s initial-two year no-credit policy is everywhere else in the industry, and by assuming other forms of credit management, Hula Global enables new brands to demonstrate their established presence in the industry with firm transactional relationships and instant cash flow.
The first couple of years create an opportunity for Hula Global to establish a positive rapport with the brand. Over this time, both sides address expectations, timelines, and standards of production, quality, and communication.
Brands prove their seriousness and professional reliability by placing orders, following schedules, and making timely payments. Such understanding is vital before any credit arrangement is even considered.
The second piece of the puzzle is risk assessment. In the first year, Hula Global collects little to no data to analyze the brand’s purchasing habits, payment behaviors, or overall financial trustworthiness.
Credit decisions find root in past performances, not in promises or projections. After completing a full year of business with Hula Global, the brand leaves a trail, which makes operational evaluations, order volume, and financial discipline assessments much more responsible and predictable.
Moreover, new brands are still figuring out product-market fit, product design, pricing, and consumer demand. They might experience order volume inconsistency, which can include small test runs and large production runs (and everything in between). Offering credit in these kinds of situations can complicate things for both new brands and Hula Global.
By instituting a policy of upfront payments, Hula Global guarantees that brands are financially prepped and are serious about growing their business.
It isn’t that Hula Global wants to discourage new brands, but rather that they want to encourage businesses they want to help. In Hula Global's first year, they still offer new brands help in areas of manufacturing, sourcing, quality control, and logistics despite the lack of credit.
The absence of credit does mean a lack of partnership; it just indicates a lack of risk on Hula Global's part.
After a brand's initial couple of years of business with Hula Global, it can be evaluated for credit. Credit is based on purchasing history and payment consistency in Hula Global’s first year. Credit eligibility goes as high as 50 percent of the previous year’s purchases, so long as there is enough consistency and trust.
This practice also conforms to the standards of the sector. It is commonplace across the manufacturing, supply, and export sectors to demand a minimum of two years’ worth of transactions before extending credit. Such a practice promotes fairness and accountability for the sake of long-term business relationships
To conclude, the reason Hula Global does not extend credit in the first couple of years is that credit is a form of business lending that is based on trust and the... of the business's ability to win in the marketplace.
A couple of years is a trust-building period, economically speaking, and in other ways, a point of negotiation in terms of the relationships that have been woven together.
After the trust is established and the relationships are woven together, the company will be able to enjoy the benefits of credit facilities that are structured to support the company’s growth and to ensure that all the parties are financially safe.
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