Matters of finance — Exporter Magazine
The global economy is on an uptick, giving a sense of comfort to exporters that there is new business to be tapped.Business owners will, however, be limited by how much they can grow their revenue if they do not manage their cashflow well. As foreign buyers seek to increase the volumes of imported goods, an exporter who is an existing supplier, may need additional working capital to buy a larger quantity of stock or raw material. An exporter may also require additional equipment and more warehousing capacity. If the company is also caught waiting for the next payment from a few big buyers, as well as having to pay provisional income tax, there will be extra pressure on cashflow.
“Generally new growth is fantastic, however one of the biggest issues is that the growth needs to be funded and requires a higher level of working capital,” notes Craig Brown, Lock Finance’s general manager (lending).
“Growth cannot always be funded by the shareholders as they may have exhausted their reserves.” For small and medium sized companies (SMEs) the challenge has always been trying to raise new collaterals to increase credit limits from their banks. Once these avenues are exhausted, non-bank financial institutions such as finance and factoring companies can provide quick access to additional cashflow provided the debtors meet the financiers’ risk profile.
Where can you get more working capital within 24 hours?
Factoring and invoice financing are two of the most common instruments to unleash cashflow for businesses needing additional cash. At Bibby Financial Services, as soon as an exporter can provide proof of invoices being raised, they can have access to fresh funds within 24 hours. John Blackmore, national sales manager for Bibby Financial Services, says exporters intending to rely on invoice financing should ensure their trade has been insured to protect against potential non-payment or defaults. If the exporter does not have trade credit insurance, Bibby will help find cover for these trades.
“You can also choose to receive funds in the currency of your choice. For larger companies with business representation in a foreign country, the funding can be done through Bibby’s office in the respective country, essentially making the funding a domestic business-to-business transaction,” Blackmore says.
Once the invoice has been presented, the exporter will get between 70 and 80 percent of the value of that invoice. For large trades, the exporter may get better rates based on the invoice’s value, and the risks associated with the debtors.
Bibby Financial Services, which has been operating in New Zealand since 2011, has been trading under the name for 30 years. The company is part of the Bibby Line Group, a logistic company which has a 200-year history.
How to control what you can control
Barry Squires, head of international business at Westpac New Zealand, says the key to controlling cashflow is to stay focused on the business and not “take your eyes off the curve ball”, this means watching payment cycles and cashflow needs closely.
However, payment cycles are often dictated by suppliers or debtors, or based on industry standards, according to Brown from Lock Finance, which provides a range of products to ease cashflow constraints.
“The idea is to just keep your cycle as short as possible so that financing costs or stock holding costs are as low as possible. Try to get as much payment upfront as possible. This is a matter of again understanding your cashflow cycle and what parts you are able to influence.
“But one of the worst mistakes is in not chasing your clients for payments once payment terms are agreed upon,” Brown says, adding that exporters should be aware of having an inappropriate facility that does not match current cashflow timings.
Assuming an exporter has sealed a deal which matches with the company’s business and has capacity to fulfil the order, be prepared with core financial information and relevant documentation to support a request for cashflow funding, Brown says.
China’s credit tightening; New Zealand may feel the whiplash
If you are trading with China, be extra vigilant. Some exporters are beginning to experience requests from Chinese buyers/debtors requesting extended payment terms – this according to Squires from Westpac.
This is the result of the Chinese government’s move to tighten credit, resulting in some provincial banks cutting back on lending to manufacturers in China; in some cases forcing the manufacturers to crystalise their losses, Squires says.
As these Chinese manufacturers face difficulty getting working capital from their banks, there will eventually be delays in the buyers’ paying, hence New Zealand exporters should be vigilant, Squires advises.
According to Bloomberg, Chinese banks have had their biggest quarterly rise in bad loans. Non-performing loans in March 2014 rose to 646.1 billion yuan (NZD$122.59 billion), up 54 billion yuan – the highest since September 2008. The news agency also reported that more Chinese companies are heading towards default as higher funding costs and slower growth weigh on their existing debt commitments.
Yoke Har Lee is an Auckland-based freelance writer. Email yokeharlee@yahoo.co.nz
Publishing Information
Magazine Issue
Exporter Magazine July/August 2014 issue 34
