At Crowe, we work with a wide cross section of SME business owners. Our clients often face pressing issues related to cash flow management, but Irish SMEs involved in international trade are often presented with added layers of cash flow complexities.
Businesses reliant on importing / exporting often find themselves managing a longer working capital cycle by virtue of the gap between order and delivery of goods and perhaps more importantly the interval between overheads payments and customer receipts.
There are working capital solutions available specifically tailored to address these issues, such as trade and export finance.
Trade finance enables businesses to buy the stock they require to fulfil orders. This provides the dual benefit of easing day-to-day cash flow pressures around up-front supplier payments, but also facilitating turnover growth via speed of goods delivery and capacity to realise orders.
Export finance is an equally adept solution for those looking to unlock working capital from overseas customers, particularly if delayed payments or collections present a cash flow gap between point of sale and receipt of payment.
Depending on the nuances of your import or export business either trade finance or export finance (or indeed a combination of both) may help unlock working capital and ultimately optimise your business’ cash flow.
Below we examine a suite of typical trade and export finance solutions focused specifically on SME businesses with an international trade component.
Purchase order finance / forecast sales
Purchase order finance enables businesses to bridge the gap between a customer placing an order and the up-front payment required by the supplier to fulfil that order. It can also be possible to get finance assistance in circumstances where your business has robust forecasted sales and therefore has a requirement to purchase goods and/or build stock levels (provided the goods/stock have a liquid value).
Pre/post shipment finance
There are a number of finance mechanisms available to facilitate payments or promise of payments to overseas suppliers, including:
- Letter of credit / supplier undertaking: Essentially this represents a promise from your finance partner ensuring the supplier will receive payment on the timely delivery of purchased goods.
- Deposit finance: In certain instances, overseas suppliers will require an advance deposit before agreeing to release or ship products. Deposit finance can push the supply chain process forward by funding this upfront payment and enabling the shipment of goods. It’s also possible to avail of additional layer of risk mitigation by protecting against failed delivery of products (or supplier insolvency).
- Full pre-payment finance: Pre-payment discounts are often a feature of the import business. Full pre-payment finance can open up access to these discounts and take advantage of the full suite of trading opportunities.
- Post-shipment finance: This option allows for the full payment of suppliers on shipment of goods.
Releasing funding from your business’ existing invoices can alleviate cash flow gaps that typically accrue when offsetting the time lag of debtor collection versus payment of day-to-day business overheads (wages, etc). An invoice discounting facility can help businesses fill that gap by realising funding from raised invoices giving you the immediate cash inflow benefit, while retaining full control over their sales ledger, credit control processes and their customer relationships.
Bad debt protection
Businesses looking to protect themselves from the risk of bad debts are often unaware that it is possible to avail of a level of reassurance by insuring against specific company exposures. Bad debt protection provides comfort that cash flows can be safeguarded in the event a customer does not make payment and/or becomes insolvent.
Our corporate finance team advises clients who wish to finance international trade. We can help you find you the best terms in the market and advise you on how to structure your funding in the most efficient way.