Clothing and apparel supply chains combine MOQ deposits, tight seasonal calendars and strong links to USD/CNY pricing. That mix can make sterling cash flows swing from one collection to the next. This indicative playbook shows finance leaders how to map exposures, set a workable policy, and choose the right tools—so peak-season commitments are predictable and cash-flow risk is controlled.
1. Where FX risk lives in clothing supply chains
Most apparel importers face the same pattern:
- MOQ deposits (often 20–30 %) at purchase-order stage in USD.
- Balance on shipment (70–80 %) 45–120 days later, timing varies with fabric lead times and factory capacity.
- USD/CNY linkage to FOB or EXW pricing, even when sellers invoice in USD; CNY moves can alter supplier quotes between seasons.
- Seasonality: Spring/Summer (SS) and Autumn/Winter (AW) buys create exposure clusters; Chinese New Year and Golden Week can shift shipment timing.
- Freight & surcharges (USD-denominated) that rise around peak seasons.
Result: GBP cost is exposed twice—at PO (deposit) and at shipment (balance). A small move in GBP/USD during the production window can erase margin.
2. Map exposures clearly—deposits, balances and offsets
List every exposure line in one sheet. Record for each PO or forecast:
- Currency and direction (GBP→USD payable).
- Amount and split between deposit % and balance %, expected dates.
- Certainty: committed PO vs forecast; note MOQ constraints.
- Business driver: fabric lead time, capsule launch, promo window.
- Incoterms: EXW/FOB/CIF.
Group by month to see exposure peaks (for example, SS deposits Nov–Dec; AW balances May–Jun). Use this to plan layered cover rather than single-day execution.
3. Write a short policy with budget rate and hedge bands
A concise written policy reduces decision friction. Key elements:
- Objective: protect gross margin and cash-flow predictability.
- Budget rate: internal planning level for GBP/USD; trigger actions if breached.
- Hedge-ratio bands: cover 60–80 % of committed deposits and balances; lighter cover for forecasts.
- Permitted tools: natural hedging, currency netting, forwards (window/dynamic), market orders (limit & stop-loss), selective options.
- Approvals: sign-off thresholds, two-person rule, trade logs, monthly coverage reviews.
4. Tools—when to use forwards, spot, orders and natural hedging
Forwards: secure a workable future rate for deposits/balances. Window forwards allow drawdown across flexible ETDs.
Market orders: use limit orders to target better buying levels and stop-losses to cap downside during volatility.
Natural hedging & currency netting: match USD revenues with USD payables; hold USD in a named multi-currency account to offset costs; align borrowing currency to revenue currency.
Spot: suitable for small top-ups; avoid relying solely on spot in peak seasons.
Options: protect downside while allowing upside; premiums mean they’re best for higher-margin or uncertain volumes.
5. Supplier-term levers that reduce FX risk
- Currency of account: request GBP quotes for basics; keep USD for fashion lines.
- Price-hold windows: negotiate fixed-rate validity periods.
- FX adjustment clauses: define when prices can be reviewed.
- Deposit timing: stagger deposits or tie to fabric allocation.
- Shipment flexibility: window ETDs instead of fixed dates.
6. Seasonality calendar—plan SS/AW like a treasury
- SS: sampling late summer, POs Q4, deposits Nov–Dec, balances Feb–Apr.
- AW: sampling winter, POs spring, deposits May–Jun, balances Aug–Oct.
- Holiday effects: Chinese New Year (Jan/Feb) & Golden Week (Oct) shift ETDs; use layered or window forwards.
- Freight peaks: build USD allowances for surcharges.
7. USD/CNY watchlist—what matters for apparel
Even if you pay in USD, suppliers’ cost bases are CNY-driven. Watch:
- USD/CNY trend & CNH liquidity around holidays.
- Input costs such as cotton, synthetics and energy.
- Factory capacity & MOQs—tight capacity reduces flexibility.
Practical step: price each capsule at a budget GBP/USD and test sensitivity ±3–5 % to check retail margin resilience.
8. Controls, KPIs and governance
- Daily position view: deposits/balances, filled orders, forward utilisation, margin headroom.
- Monthly coverage review: committed vs forecast cover.
- Variance-to-budget: achieved vs budget rate per collection.
- Exception log: approved deviations (rush capsule, date shift).
9. Checklist
- Map all PO deposits/balances by month.
- Set budget rate(s) and hedge-ratio bands.
- Choose tools—layered forwards, limit/stop-loss orders, natural hedging.
- Negotiate supplier terms: currency, price-holds, deposits, shipment windows.
- Review monthly: coverage, variance-to-budget, forward utilisation, headroom.
Related reading
- Currency Risk Management
- Market Orders & Stop-Losses (how they work)
- International Payments (settlement essentials)
