Suppliers trading overseas usually offer delayed payment terms, sometimes more than 120 days or so. That means they have a large financing gap between supplying their goods and receiving their payment. However, they still need capital to sustain their business operations during this gap. To resolve this, many exporters submit their unpaid invoices to an export finance provider that pays a percentage of the invoice value as an advance and the remaining after the invoice clearance.
Small businesses participating in foreign trade can significantly benefit from export financing by expanding their company, growing revenue, and entering new markets. Below are some key benefits of financing exports with these funding options.
Easy Access to Funding During the Financial Gap
One of the key benefits of export finance is that it provides access to funds, helping Small and Medium Enterprises (SMEs) handle business expenses during the financial gap between supply and payment. Exporters can use these funds to cover various expenses related to the export, such as transportation costs, foreign regulatory compliance, customs fees, etc. Designed to meet the specific needs of Micro, Small, and Medium Enterprises (MSMEs) engaged in exports, they ensure sufficient funding supply to conduct international trade successfully.
Risk Reduction Through Export Credit Insurance
Exporting is risky for SMEs, particularly the risk of non-payment by buyers in foreign countries. Export finance reduces this risk by providing export credit insurance to borrowers. As a result, small businesses get protection from non-payment risk, reducing their exposure to risk and ensuring timely payment for their international shipments.
Improved Cash Flow
Small businesses can benefit from export financing by boosting their cash flow. When a company supplies its goods overseas, it often deals with long payment terms, causing unnecessary cash flow issues. Similar to invoice financing, export financing bridges this gap by providing them with the funds required to cover other expenses until the foreign buyer clears the payment. With a better cash flow, a business can run more efficiently when waiting for their payment to arrive.
Increased Sales
An indirect benefit of export finance is that it helps an SME to increase its sales. With easy access to funds and other resources, they can grab new opportunities in the international markets to expand their customer base. Increasing sales volume eventually grows revenue and boosts profitability, leading to growth, sustainability, and long-term success.
Competitive Advantage
With export financing, an SME gains an advantage over its competitors in the global market. They can invest the loan amount into research and development, operational expansion, and product and service improvement. With these benefits, a company can differentiate itself from its competitors and gain a better position for long-term success in foreign markets.
Export finance can be an effective form of invoice financing for businesses engaged in international exports. With easy access to funding, improved cash flow, reduced risk, increased sales, and competitive advantage, a company can succeed in the global markets and grow its operations without facing financial challenges. Checking the finance provider’s terms and conditions and applying for the financing option that best suits the business requirements is worth considering.
