Funding Export Growth

A huge export order that could transform your business, comes in. Are you ready for the financial and other radical challenges? Here’s some advice on how to find and manage finance to meet significant export opportunities.

If you’re a small to medium-size enterprise with innovative products and services, you could win an export order that radically impacts on the growth of your business. The unpredictability of export growth contrasts with the more reliable incremental growth expected of domestic sales. Successfully meeting a large export order may require re-alignment of everything you do, including your financing structures and relationships. 

One of your immediate challenges will be how to gain access to appropriate levels of finance. You might require new infrastructure to boost capacity, investments in research and development to improve product and processes, increased bonding or insurance facilities, or working capital funding for pre-shipment requirements. The most efficient growth path might be to develop parts of your supply chain overseas, and this might require access to capital to make foreign investments.

A key constraint to accessing increased debt finance will be the security you can offer. A common problem for rapid-growth export-driven businesses is that the value of assets does not grow as quickly as revenues, resulting in a security shortfall impacting on the level of increased debt you can access. This is particularly relevant if you are in the services sector where the main asset is intellectual property.

Here and Now

You will need to support growth in a balanced way because your choice of the most appropriate trade finance and insurance products will determine the size of the margins you make. It’s important to make the distinction between your short-term and long-term finance needs so you can align your needs with available debt finance products, provide the appropriate security (long-term assets for long-term funds) and efficiently manage the cost of funding.

For example, an overdraft may be fine to fund the short-term working capital cycle of purchasing raw materials, processing, sale of finished goods, and the payment terms you offer your buyer. But if you need new equipment, it may be more efficient to consider a lease, or changing your terms of payment to boost your working capital.

If you need additional working capital to fund export sales, a solution may be to ask your buyer to provide you with a letter of credit from their bank. In most instances, your bank could use this to provide you with additional finance.

Exports can often require lengthier payment terms than local sales, which may affect your interest costs. Terms may exceed 90 days, and don’t count on predictable payment. But the longer the payment period under your contract, the greater the risk of non-payment and, consequently, the greater the pressure on working capital.

Short-term credit insurance covers you against loss if the buyer doesn’t pay you. Banks may also consider a short-term insurance policy to be adequate security to provide additional finance against overseas receivables working capital finance. If you need this form of insurance, there are specialists such as Atradius and Coface. There are also government and non-government agencies, such as Austrade, AusIndustry, the various State Chambers of Commerce, State Regional Development bodies and the Australian Institute of Export, that can assist you to improve your understanding of financial products. 

Funding Relationships

If this is your first export, you should ask your bank what types of trade finance facilities are available. Most banks have specialist trade finance departments, and your relationship manager could arrange an introduction.

Having a continuous relationship with your bank will help you get support if you go through a cash flow crunch or need funds to meet a big export order. Businesses tend to go to their bank only when they’re in trouble, but this is exactly when you’re most likely to experience a negative reaction. An ongoing relationship with your bank will help them understand the risks and opportunities for your business.

There are many ways to finance growth, but a general approach would be to consider your need and match the term of your need with the security that you offer and the term of the loan.