Monthly Archives: May 2017

How and Why Export Finance Works

Exporting-financeBusiness, as it is, is not an easy venture. It takes a lot of dedication, hard work, finances and of course guts. If opening up shop domestically is already a massive undertaking, imagine how magnified everything becomes when we think internationally. Exportation both frightens and excites an entrepreneur. But to us, it’s not something to be scared of especially when we’ve got export finance to back us up.

To a lot of people, export finance is something new and foreign. But given its perks and benefits, you’d be at a disadvantage if you never get to hear about it and we’re here to fix that.

By definition, export finance is the method by which companies get to trade internationally without the usual burdens of documentation and threats to collections and liquidity. This is done by selling the rights to collect against export sales invoices in exchange for an advance of their value to be received earlier than their maturity.

Majority of sales transactions happen on credit. If you look at your accounting books, you’ll realize that sales occur either on cash or on credit. With foreign trade, majority of importers opt to defer payment. This means that they shall withhold payment until a set maturity date which is oftentimes the time by which the goods are received or when they have been resold.

The very reason why many businesses find it useful is because it helps avoid issues with collection and liquidity. International trade means additional administrative costs and the need to fine tune certain processes to comply with the culture and laws of a specific country or territory. Additionally, export finance providers tackle the administrative requirements in terms of collection which saves the company both time and resources.

Moreover because it speeds up the collection process, the level of cash inflows grows as sales increase. This alone strengthens working capital and improves the entity’s state of liquidity and solvency. The process even helps minimize if not completely avoid financial risks namely credit, foreign currency and interest rate risks.

Overall, export finance help business entities who wish to take advantage of the opportunities presented by the world market. By cutting down and removing factors that present risks or negate benefits, it allows even the smaller companies to venture further. Even startups can make use of it as it does not have the strict requirements and application process that most funding methods and institutions require.


Learn more at workingcapitalpartners.com