The government has set a lofty new target of 100,000 additional businesses exporting by 2020, which will add a projected £5.6bn to Treasury’s coffers. There is a sound economic reasoning behind exporting and one of the many financial benefits is that a business can spread financial risk across markets, which brings welcome relief if the economic outlook at home is far from rosy. Additionally, any SME facing competition at home can potentially gain a competitive edge from sourcing goods and raw materials from overseas.

Yet, in spite of the many attractions of exporting, one of the biggest threats to UK businesses trading internationally is payment terms. In a similar vein to doing business at home, exporters encounter problems with longer payment terms of 30-120 days. Adding to this, not getting paid on time or at all can put a strain on business cash flow, stifling growth and in some cases leading to insolvency.

Let’s take a closer look at how export finance can help avoid cash flow problems to help a business thrive.

What is Export Factoring?

This type of factoring is suited to small and medium-sized exporters that export consumer goods with open account terms. This is when goods are shipped and delivered before payment is due, typically within 30-90 days. Put simply, a factor or factoring company buys the exporter’s foreign accounts receivables and provides an advance to the business of up to 80% of the value of the invoice typically without recourse where the factor assumes full liability for non-payment. The facility virtually eliminates the risk non-payment by foreign buyers, allowing the UK exporter to offer open account terms with confidence.

Export factoring improves short-term cash flow and boosts the businesses competitiveness in an international marketplace. As part of the process, the factoring company manages credit control and collection services on behalf of the business to allow business owners to focus on business operations. Factoring foreign accounts receivables is a viable alternative to export credit insurance, long-term bank financing, expensive short-term bridge loans or other types of borrowing that create debt on the balance sheet.

How can it help?

Export finance can help exporters release working capital from cross-border transactions that would otherwise be tied up in customer invoices and purchase orders (POs) for up to 120 days. These facilities are typically standalone from bank lending, therefore, they do not get in the way of existing facilities or appear on balance sheets.
In broad terms, sellers of goods or services want to get paid as soon as possible (even before trading) and buyers want to delay payment for as long as possible to maintain liquidity and give themselves time to sell on to the end-customer. In this scenario, export finance providers can offer financial guarantees and bridge the finance gap from outlay to payment as well as establish trust between the seller and buyer. 

Export finance takes many forms, helping to reduce cash flow problems with payment guarantees from a customer when goods are being exported, advance payments for access to additional working capital and the discounting of customer invoices to avoid payment delays.
Export factoring can bring considerable cash flow benefits to exporting businesses.

If you would like to know more export factoring and how it can improve cash flow and boost competitiveness for businesses trading internationally, please call 08000 24 24 51 or email for free and confidential advice from one of our professional advisers

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