Circular textile also means preventing financial waste

Circular textile not only prevents the waste of clothing and fabrics, but also the financial waste that companies ‘produce’. The overproduction of apparel not only causes environmental damage, but also causes financial waste. And financial waste continues. Due to insufficient focus on legal, financial aspects and risk factors, a lot of money is written off every year on trade receivables, too much is paid for working capital or companies go bankrupt unnecessarily due to lack of cash flow or non-payment of debtors.

What is financial waste? Of course, the main reason for financial waste is the overproduction of clothes. It is difficult to pinpoint the exact numbers, but it is generally estimated that more than 30% of all production is never worn or sold. From socks to wintercoats, suppose you use an average production value of 10 euros, this would mean that 1,400 billion is produced annually and 450 billion is wasted.

There are several initiatives to reduce overproduction. One of the initiatives concerns artificial intelligence in the field of forecasting, warehousing and replenishment. By better estimating what will be sold, optimizing supply chain management and replenishment of the retail, overproduction will be reduced and will lead to enormous cost savings, even more profitability and better margins.

But of course better financial management and a grip on risks, the right financing and legal aspects of business also contribute substantially to the prevention of financial waste. We take you through a number of these matters, such as preventing write-offs on debtors, proper legal framework of business and paying too much for financing.

Prioritising ESG is an imperative for the back office
More and more, ESG is becoming important for credit management and finance. Not only the Sustainable Development Goals are applicable for your goods, production and logistics, but also for your finance. For instance, making payments in time is important for your environmental, social and governance performance and strategy. And apparently companies are still not fully aware that paying suppliers on time makes a substantial contribution to ESG. Companies are obviously still insufficient aware of the impact. But that is something that applies throughout the entire supply chain. Or it simply doesn’t matter enough.

Financial waste from a credit risk perspective
But preventing financial waste in our perspective, for us this also means that companies must manage their debtor risks better. The biggest reason for bankruptcies in business are write-offs on accounts receivables.

Know your clients. But also your suppliers. What is their credit worthiness at this moment. And monitor this continuously. With a credit check you get a full and extended overview on your business partner, you’ll see if there are any current issues, the ratios of the company and even the implemented ESG and CSR policy of your business partner.

Also your agreements and general terms & conditions, als well as for sales as for your buying & production, need to be in optimal condition. And you can extend every contract with appendices for instance for quality management, safety, compliance and sustainability subjects.

Last year it turned out that almost 86% accepted longer payment terms due to all the troubles, this year that has grown to more than three-quarters.

When customers indicate that they have difficulty with payments, 34% are offered longer payment terms (especially for large companies: 40%), in addition to which only 23% indicate that they do not negotiate terms.

Large companies exert more influence on their suppliers, despite the Euro Payment Directive in which payments must be made within a maximum of 60 days.

Going green is hard when your bank account is in the red

Still more than 1.3% on sales is written off on debtor losses. In the current market and situation in retail, we see that this percentage is increasing rapidly.

If we zoom in on all overdue receivables and late payments that require action, only 32% of all receivables handed over for collection by third parties are collected.

These are the measures against late payments. What we see is that more and more pre payments are being asked. This means companies need higher cash flow to meet supplier demands.

A trade Credit insurance can help you through a perfect storm. Not only to cover high debt risks on your customers in severe turbulent economic times, but also how a credit insurance helps you to attract supply chain finance, or in other words: working capital.

Trade credit insurance
If we take a look into trade credit insurance, there are a lot of different types of risks which can be insured. Of course, a credit insurance covers non-payment of your invoices, but it also can cover your buying & production costs in case a debtor goes bankrupt before delivery

Next to that, a credit insurance offers the possibility to cover pre payments to suppliers. If you’ve made a downpayment and your supplier goes bankrupt before delivery, not only will you lose your money, but you will also not get the goods. If you do not have the right working capital to start your production elsewhere, your business and continuity will be at risk.

And finally, a trade credit insurance offers coverage on ‘Insolvenzanfechtung’, a risk you may run if you have made a payment arrangement with a German debtor in the past 4 years.

Trade credit insurance and ESG
And also a trade credit insurer has a focus on ESG. There is a clear correlation with non-payment and rising insolvencies in relation to ESG policy of companies.

Supply chain finance en ESG
Reporting ESG performance in an ESG report is increasingly contributing to the bankability of companies. Many organizations are adapting their business models, reorganizing their corporate structure and devoting significant time, money and resources to integrating sustainability into their core strategy.

More and more organizations see investing in environmental, social and governance (ESG) reporting no longer as an administrative burden, but rather as a tool to attract funding. Reporting ESG performance in an ESG report is increasingly contributing to this.

Would you like to know more about preventing financial waste and do you want to avoid risks? Contact MODINT Credit & Finance, email or call +31 88 5054700.

During the trade mission ‘Circular Textile’, MODINT Credit & Finance gave a presentation on ‘Financial waste’. Would you like to receive the handouts? Please contact MODINT Credit & Finance. Mail us at or call us +31 88 505 4700.

Credit management for fashion, sporting goods, shoes, textiles, home & living

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