No matter what time and age it is, finances are always a tricky subject especially when we’re talking business. Many entrepreneurs find themselves at a crossroads every time the topic presents itself and all the more when export trade is involved. Luckily, there’s something like the export overdraft to help smoothen out the rough waters.
But what is an export overdraft to begin with? In its simplest sense, it is a financial arrangement that allows businesses to advance the value of their customer invoices from their export sales transaction prior to their maturity. Since a majority of importers opt to pay their purchases only after delivery or once the goods have been resold, cash is locked up for considerable periods often taking up to months until complete payment is achieved.
Receivables, both from domestic and foreign sales, are an asset. They’re good but only to an extent. When they remain outstanding for prolonged periods of time, this can create a liquidity issue preventing the company from reinvesting in itself and using its resources in operations as should be. To hasten the collection without having to tarnish client-customer relationship, the export overdraft is utilized.
Additionally, it is the perfect method for just about any type and size of business. It’s non-discriminatory in the sense that it does not bank on the company’s creditworthiness or number of assets to garner an approval and cash release. This is because the export overdraft is first and foremost not a debt. It does not require an asset-based or any other type of collateral. Additionally, it is the creditworthiness of the invoices being subjected to the service and the capacity to pay of the customers to whom they are attached. This makes it available not only to established exporters but also to startups, small to medium scale enterprises and even recovering entities.
It’s relatively fast too and can be arranged in only a matter of days. This is a stark contrast to other financing options available in the market which can take up to weeks or even months to process.
The export overdraft likewise aids in cash flow injection which in turn helps improve liquidity and strengthen working capital. The hastened collections also allow the business to further finance and support its growing operations without the need to borrow or incur debt. Plus, without any interests, the method only calls for a fixed fee which helps save on costs.
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