Financing Export Operations

In the export business – as in business more broadly – maintaining a healthy cash flow is a critical element for success. Cash flow weighs heavily in the equation that determines whether your business can run its purchasing and manufacturing processes at their peak levels, and having a steady cash flow can greatly control your ability to grow.

Unfortunately for exporters, recent changes in world trade conditions have made managing cash flows more difficult. Increased competition between suppliers has meant that overseas buyers are now regularly able to demand, and obtain, ‘open account terms’. These terms mean that shipments are paid for only when they arrive at the buyer’s location – with no reliable guarantee of end payment.

If you are an exporter, this is a poor situation for a number of reasons.

Firstly, shipped freight can be at sea for weeks and even months, presenting long delays before payments are made and consequent trouble for your cash flow.

Secondly, the Australian dollar could move during shipment and before payment, affecting your profit margins and the competitiveness of your goods.

Thirdly, once the shipment arrives, there is no iron-clad assurance of payment being made. For whatever reason, the buyer may reject your product, or suddenly find they are unable to pay. Arranging the return of the goods can be an expensive and time-consuming task.

To circumvent payment delays, you might consider obtaining finance from a bank. Because of the risks introduced by open account terms, however, a number of banks are refusing to fund these types of sales without some form of property or asset security – such as a home or business – on the loan.

Instead, an increasingly popular way for exporters to obtain finance without having to risk their assets is export debtor finance. Often referred to as ‘export factoring’, this is a solution that resolves the problems of impeded cash flow and non-payment in one.

Export debtor finance works by having your overseas customer approved for ‘credit’ by a correspondent at their destination who is attached to your chosen financier.