Solving the Global Logistics Puzzle: How to Piece Together Your Export Operations with Working Capital Financing.

May 10, 2023

Maintaining operations as an exporter can be a steep challenge. International trade markets can sometimes feel difficult to navigate, and exporters, particularly ones operating with trade credit, can face challenges associated with logistics as they contend with the hurdles sometimes associated with international trade, such as the risk of non-payment, lengthy payment terms, fluctuations in exchange rates, and even unexpected instability.

Naturally, exporting can present challenges in maintaining healthy cash flow and funding operations in order to generate revenue. This can, unfortunately, become a self-exacerbating problem. Delays in receivable payments that disrupt operations and lead to an inability to fulfill further orders can create further cash management problems, making the problem of securing funding solutions worse.

In order to address these challenges, some organizations might utilize financing solutions designed for exporters, some of which are aimed at easing burdens typically associated with the export market.

Financing and exporting

Exporting goods for revenue can make it particularly challenging to meet cash flow needs for a variety of reasons. Often these reasons include difficulties that can arise as a result of exporting in markets that are vastly different from domestic markets in many ways. Exporters can face challenges associated with operating with importers who are accustomed to different payment terms, fluctuations in exchange rates between global currencies, and more. As a result, sourcing funds to operate can sometimes seem like an uphill battle, even using traditional banking methods.

Supply chain finance and other types of financing solutions for exporters aim to potentially ease some of these burdens by creating financing options that are tailored to businesses like exporters who face unique challenges in maintaining sufficient cash flow to continue operations, fulfill exports, and ultimately, drive revenue.

Financial technology has shaped the financing process for many organizations and helps drive many of the services designed to help export companies overcome cash flow issues. Online platforms might help companies find financing solutions, for example.

Cross border finance can be used to help organizations operate internationally. Financing solutions for exporters might also be utilized in order to expand operations or break into emerging markets.

SME finance aimed at global markets isn’t only relevant to exporters. At a different point in the supply chain, import finance can similarly be used to support export operations, as they can be used to enable importers to request goods.

Financing options for exporters

There are many trade finance options available to exporters that can be used to address deficiencies in working capital sufficient to sustain exporting operations. As sustaining operations is crucial to any business, and fulfillment of orders to exporters is certainly no exception, some global finance options may be able to enable exporters in critical ways. Supply chain finance and other export finance might aim to ease burdens associated with cash flow lags and logistics, for example. We’ll explore some of the financing solutions exporters can use in addition to or alternatively to traditional banking. These might vary; some financing solutions may rely on collateral while others may simply rely on creditworthiness. Non recourse finance might be used by exporters in order to meet cash flow needs.

Invoice financing

One of the issues that exporters sometimes face is a significant gap in time between when they spend money to fulfill deliveries and when they actually receive payment for said deliveries. Naturally, this can make invoice management all the more crucial for exporters. Still, businesses with unpaid invoices, may be able to leverage the theoretical trade receivables value of those invoices through invoice financing. This might also be called receivables finance.

Invoice discounting

This is a financing option that can allow a company to borrow funds using their unpaid invoices as collateral. Through invoice discounting, an exporting company might be able to sell their unpaid invoices to another entity, called a factor, generally at a discount. The factoring company can give the exporting company an advance, then seek payment for the unpaid invoices, and pay the exporting business the difference between the original advance and the payments received for invoices, minus any fees the factor might charge as well as the discount.

Invoice factoring

Similar to invoice discounting, invoice factoring involves leveraging the value of unpaid invoices in order to free up funds that may be critical to operations such as future deliveries. With invoice factoring, however, rather than borrowing funds using invoices as collateral, a business can simply sell their unpaid invoices to another entity. They might receive less, in exchange, than their invoices could theoretically be worth, but they may be able to access needed working capital for international trade quickly, as well as shed off the risk of nonpayment to another organization.

Purchase order finance

Much like invoice discounting, this enables companies to utilize theoretical future funds to secure an advance against, in the present for international trade. However, with purchase order financing, rather than using unpaid invoices as collateral, an organization might use purchase orders.

Collateral free financing

Some businesses earning revenue through exports and operating in international trade markets may seek small business finance, but may not have access to assets that can be used as sufficient collateral to assuage concerns about credit risk and finance operations. However, they may need fast funding in order to sustain operations. As such, some organizations might seek out financing options that don’t require collateral. With sufficient creditworthiness, and through meeting certain requirements like minimum turnover, they may be able to access funds through collateral free finance. These options might include lines of credit designed for exporters, export credit insurance, a letter of credit, and more.

Additional considerations and approaches

There are many other financing services available to exporters. We’ve explored some of the common ways exporters can utilize financing in addition to or as an alternative to banking in order to meet vital working capital needs while operating in global markets and exporting goods. However, there are many ways that exporters can manage cash flow, and optimize operations. For example, invoice verification is a simple way to open a line of communication with importers, which can help both parties avoid unnecessary future disputes, and may even lead to more favorable payment outcomes.

The bottom line

Each company is unique. Accordingly, exporters should independently  weigh the benefits and risks of any financing they seek. Still, there are many financing options available to businesses that operate in global markets and export goods–many of which are specifically focused on helping address challenges that can be associated with exporting goods. Some of these challenges might include cash flow management, the risk of non-payment, and the potential for miscommunication.

Through novel financing solutions driven by technology, and designed to help exporters operate, exporters may be able to better sustain operations successfully. To learn more about how financing solutions can help you with your cash flow management, be sure to reach out to us at Incomlend for a free consultation.