Many things in business seem to be exclusive. Exportation for instance is believed to be applicable only to established entities but that shouldn’t be the case. Even small to medium scale enterprises, startups and businesses in recovery can do so too with the help of this thing we call an export overdraft.
So how does this financing medium work? What perks will we enjoy if we choose to use it? Read on and discover the answers to these questions.
First of all, it hastens collections. Since majority, if not all, importers opt to buy on credit and defer payment until goods have been received or resold, this creates receivables. Despite being assets, the longer they remain uncollected the higher the threats to liquidity. This also keeps the cash locked in and unavailable for use until the invoice matures and is paid up. Because an export overdraft provides an advance of the value of such export sales on credit prior to their maturity, collection is hastened and done almost instantaneously.
For the same reason, liquidity is improved, cash inflows are better and working capital is strengthened. This brings us to our next point.
It fosters continuity. With cash and liquid assets at a steady or increasing level, the business gets to have adequate resources for its regular operations and even for its other endeavors. Furthermore, this gives the entity a chance to reinvest in itself and even grow its export ventures.
Third, an export overdraft helps cut down administrative work and costs. Apart from the advance received, the responsibility of collection is passed on to the financing institution or provider. This saves both time and money as foreign trade no doubt will demand added labor and expenditures for the added market.
They even take care of documentary and legal matters. Business owners need no longer worry about the meticulous documentation or about the set of rules and regulations, tariffs, duties and taxes and other legislative restrictions of each foreign market they wish to export to.
Last and definitely not the least, an export overdraft helps reduce if not eliminate financial risks. Exporting and trading internationally comes with risks. It’s not all honey and roses. It comes with a price and one has to face threats. For instance, we have currency, interest rate and credit risks that pose threats to profitability and returns. By using the said financing medium, companies get to avoid their deadly grip.