When we talk about international trade, the topic on export finance is a highly touched upon concept. It has after all paved the way for many entities to enter the global trading platform making it one of the most in demand financing tools of today. But why does it matter? How exactly does it change the game for businesses all over the world?
You see, one of the ways by which companies diversify risks is by expanding their market. As much as strong domestic sales are beloved, entrepreneurs can’t escape the effects of seasonal losses, changes in consumer behavior and even the end of a product’s life cycle. Export helps prevent or at least minimize those threats.
But then we all know that exporting isn’t as easy as what some make it to be. It’s challenging to say the least and even that is an understatement. It takes a lot of time, skill, and not to mention resources to bring one’s operations to the global scene.
Since export finance allows companies to advance the value of their export sales or invoices, it gives them the power to tie up sales and cash flows. Moreover, collections are hastened which helps in terms of liquidity and working capital. Remember that most if not all importers opt to defer payments until the goods have been received or resold and this can be a problem in so many ways.
By advancing the value of invoices, companies also get to avoid certain risks that may impose financial losses. When sales on credit occur as is with the norm of international or offshore transactions, there lies credit, foreign currency exchange and interest rate risks. All these can be prevented with the help of an export finance arrangement.
Another important point to take note of is that foreign markets come with their own set of legislations, culture, and language to name a few. This can impact administrative tasks particularly those that involve collections. Invoices will have to be tailored to the country’s language. Paper work has to be done in order to be allowed trade. The list goes on. The good news is that many export finance providers are skilled to take on this task. In other words, they shall bear the administrative duties related to the export invoices that have been assigned to them.
So does export finance matters? Well it does. It does a lot.