Lever Style, a leading Hong Kong-based apparel manufacturer, expanded its business during the pandemic, when many other suppliers struggled, or went to the wall. The secret, according to the company’s Chairman, Stanley Szeto, is building resilience into your business by saying “no” to bad apples.
You’re worth It
If your boyfriend or girlfriend was being abusive you would end the relationship. Customers are no different.
Too many buyers will treat you well when they’re looking to delay payments, but not so well when you resist their unreasonable demands. That’s when you see a bad apple’s true colors! Know your worth, and don’t get stuck in a bad relationship. Better BuyingTM is working to improve buyers’ purchasing practices, but suppliers have a responsibility themselves to pick the right customers to work with.
You are not a bank
If you give payment terms to your customers, you are acting as a bank. Lever Style leaves the risk assessment to the experts, working on the basis that if a bank or credit insurer has decided not to lend or provide credit coverage to a customer, then neither should we.
A lot of suppliers still consider credit insurance to be a waste of money, but it’s a cost of doing business, and if you can’t buy it for a particular customer, then that’s a strong signal to be very, very careful. If a brand has credit insurance, then Lever Style will offer payment terms. If they haven’t, we insist on receiving a letter of credit, a deposit for materials and the rest COD, a standby letter of credit, or a standby bank guarantee. For really small customers, we insist on pre-payment before we even go and buy fabrics.
These are measures every supplier can take. The bottom line is that if you are so desperate to work with a brand with suspect finances that you are willing to lend them money, then you can hardly complain if that brand pays late, or goes bankrupt.
Use your supplier voice to drive change
With all the bankruptcies we have seen in the past 12-18 months, I would be expecting suppliers to be smartening up by reducing/eliminating payment terms to brands without credit coverage and insisting on fair business terms with customers. Unfortunately, even bad customers seem a drug many suppliers can’t get off of, but at the end of the day nobody is pointing a gun at suppliers’ heads, and they need to learn the lessons and start saying no.
I get it: suppliers are desperate to keep the business going and to feed workers, but if in the end you can’t collect, workers don’t get paid anyways, so taking bad business is counterproductive.
You don’t have to do business with bad apples and if there were no suppliers willing to, then the bad apples would have to shape up.
How has Lever Style’s approached benefited the business?
We have virtually no bad debts even through COVID, a healthy receivables book, and we can pick and choose our customers. And that’s after the worst year ever in the history of the apparel sector. Our inbuilt resilience has meant we have survived quite easily, even doing a little better than breaking even in 2020 and having expanded our business by acquiring 4 companies in the last 12 months. The average profit margin for garment manufacturers is, let’s say, around 2%. Most are very thinly capitalized. Giving payment terms and extending credit to brands without credit insurance is like playing Russian roulette. Not doing so meant we have not only survived, but prospered, during Covid-19.
The role of Better BuyingTM
I love the idea behind Better BuyingTM because if the supplier voice is heard, and there is greater transparency on how each brand is treating its suppliers, then suppliers will have better tools at their disposal when deciding who to work with.
I’d like to see a lot more visibility and transparency on the part of brands and retailers going forward, with the sharing of Better BuyingTM scores and Company Reports becoming the norm, as brands become increasingly attuned to the reputational benefits of greater transparency in relation to how they’re improving their purchasing practices.