Export Finance - A simple Solution for Managing Cash Flow Challenges Every company wishes to expand into new markets and grow its business. However, in their pursuit, they face financial challenges which they need to overcome. Exporting products not only require more time for shipping and delivery but even payment is delayed, which can be of 120 days or even longer. The challenges become tougher if the overseas customers do not make timely payments, as its builds pressure on cash flow. A simple and most viable solution to this problem is export finance that helps exporters efficiently manage relations with their overseas customers. Export finance also helps exporters manage the gap between raised invoices and getting paid. Export finance is precisely a business funding solution providing financial support to companies to expand into overseas markets. It is a type of invoice finance that provides the company access to working capital before they are paid while selling their products or services to overseas customers. Working Process of Export Finance
The company makes deal with the importer The importer sends their purchase order to the company The company agrees and signs a contract giving the financial company control over their account receivables. The financial company reviews importers' information along with the purchase order The company prepares the invoices and share with the financial company The financial company pays a certain percentage of the company's invoice as an advance and takes all risk associated with collections. The importers pay the financial company in the time-frame of 30-60 days or even later After receiving the payments from the importers the financial company will pay the remaining outstanding amount to the company after deducting their fee.
Benefits of Export Finance Export finance helps the company handle the cash flow challenges that may be created because of the longer payment terms in the overseas selling. There is no limit on the funding received by the company through Export Finance, as long as they are growing in the new markets. Besides, export finance also provides several short-term and long term benefits to businesses that are as follows: Eliminates the risk of non-payment by the importer – In Export finance, the financial institution guarantees payments from importers and the company does not have to face the risk of non-payment by the importer. Improves the cash flow – Export finance ensured that the company maintains healthy cash flow, as they get cash against their raised invoice value from the financial institution. With immediate access to cash, the company can invest in expansion. Competitive Advantage – Export finance allows company offer open account transactions that help them hold an edge over their competitors. Better Collection Management - Financial institution handles receivables collection and also manages their credit control. Thus, the exporter is exempted from the tension of the collection of the payment and allows them to focus on other business activities. Business Growth – The hindrance of international trade is eliminated for the company and they can operate on a global market with ease.