Ask any entrepreneur this: Do you want to go global? Chances are they will scream yes in unison. The lure of international trade is too good to resist and why not? It offers so many opportunities and with a bigger market, a lot of potential is within reach. Plus, risk diversification can better be addressed. This is also the reason why export finance has become a go-to tool among dreamers.
You see, exporting isn’t as easy as it sounds. Sure, the benefits seem endless and abundant but it also comes with challenges and not to mention financial hiccups. For instance, bringing one’s brand to a new country means having to look into that territory’s market potential. It also means fine-tuning the products to best fit the culture and taste of the people. Let’s not forget about marketing either. It takes a lot to introduce a new offering. All of these require funds. Immediate cash.
There’s also the challenge of keeping cash flows at a healthy level. Majority if not all importers choose to defer their payment. They’d often wait until the goods are fully delivered or until they have been sold. This creates a slowdown in terms of collection thereby trapping cash within export sales invoices. Over time and when in bulk, this can pose threats to liquidity and cash levels.
Add to this list the challenge of collection. Apart from the time lag, exporters will have to dedicate a new team to cater to the specific region it targets to penetrate. Administrative costs will have to increase as it will entail more labor hours and matching assets and equipment for said duties.
And how can we forget about documentation requirements and the financial risks. Exporting comes with meticulous paper trail and not to mention legal requirements which are country specific. It also opens up credit, foreign exchange and interest rate risks which can prove to be very costly.
The good thing is export finance helps address all of these concerns. It allows business entities that wish to trade globally to advance the value of their export sales invoices and therefore receive cash prior to maturity. This reduces if not eliminates liquidity issues, cash flow dilemmas and financial risks. It likewise provides immediate cash accessible for urgent use. Moreover, the provider shall assume the collection function and with it the labor, documentation and legal work, country-specific requirements, equipment and expertise needed to fulfill such tasks.