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- Options in financing your exported goods.
Competition in export markets is often intense and you may be required to offer attractive payment terms to your overseas customers in order to make a sale. As an exporter negotiating a contract, you will want to be paid as quickly as possible while your importer will aim to delay payment until they have received or on-sold the goods. Because the time between production, delivery and receipt of payment is usually longer for international transactions, export financing is often required to cover the time needed to complete an overseas transaction.
You will need to fund the costs of financing transport, distribution, promotional activities and overseas travel.
Types of finance
Consider the following:
- Pre-shipment finance - You will require funds for the purchase of raw materials, components and parts prior to manufacture.
- Post-shipment finance - You will need to fund operations during the period between despatching the goods and receiving payment.
- Working capital - You will need to be able to access finance for day-to-day operations such as labour costs, equipment maintenance and overheads. As an exporter, you will also need to fund expenditure on items such as market research, hosting overseas customers and export documentation.
Most commercial banks and other lending institutions offer export finance to qualified borrowers and many have specialist international departments to advise businesses on all aspects of raising capital to fund overseas activities. This also includes advice on currencies and measures to minimise the risk of currency fluctuations through mechanisms such as forward exchange contracts.
Efic is the Australian Government's Export Finance and Insurance Corporation providing financial solutions for Small and medium enterprises that are exporters. Efic have online education and resources to help Australian SMEs exporting or investing offshore to understand the export finance options available.
Terms of sale
Meeting your buyer’s expectations regarding terms of sale may help make your product or service more competitive but the terms of sale should not be detrimental to your business. Do not place undue financial pressure on yourself to secure an order. Consider the negotiated length of delivery and sale time when choosing your finance.
Cost of finance
Interest rates and fees may vary widely and you will be expected to assume some or all of the financing costs. Take early advice from your bank or financier and understand how the costs of finance will affect your pricing and profit projections.
Factors such as the political and economic stability of the buyer’s country need to be considered. Risky transactions are harder, and more costly, to finance. Lenders may require secure methods of payment such as letters of credit, export credit insurance or credit guarantees.
Exchange rate risk
If your goods and services are to be priced in another currency, you may be exposed to exchange rate risk if there is an unfavourable movement against the Australian dollar. VECCI and the Australian Industry Group, or your bank, can advise on ways of minimising or offsetting exchange rate risks.