Factoring

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A longtime practice in the fashion industry is "factoring," whereby a company takes out short-term loans to buy fabrics and other materials to produce garments for the season, then repays the loans as retailers purchase the goods. The specialized lenders are called "factors." Factoring is not limited to apparel production; it also exists in other industries where fashion changes quickly, such as toys. A plague of the fashion business is that retailers squeeze manufacturers by returning unsold goods or paying less than the agreed-upon price. Because the garment business is so competitive, profits are low and existence is risky.

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