Feature

posted 30 Nov 2001 in Volume 5 Issue 3

10 tips for exporters

Peter Wilson Head of International Services for The Royal Bank Of Scotland Commercial Services shows why factoring/invoice financing is often a sensible direction for exporters to consider.

All businesses are aware of problems caused by late payments. Getting paid is often more difficult than getting the business in the first place and in overseas environments this problem is enhanced by language barriers and the different payment cultures in different countries. It is quite customary to wait between 90 to 120 days for settlement in countries such as Spain and Turkey which puts great strain on business cashflow.

Invoice finance is playing a key role in providing good credit management and working capital finance for many leading exporters. By using an invoice financing service exporters can receive up to 90% of the value of the invoice within a day of issue and the balance minus charges when payment is received.

Figures from the Factors and Discounters Association show a significant increase in the use of invoice discounting and factoring within the export sector with client sales up 33% and 16% respectively from June 2000. This increase demonstrates that businesses are continuing to discover the benefits of using invoice finance for funding exports.

Controlling the sales ledger

There are two basic services for export – invoice discounting and factoring the difference being the varying control over the sales ledger. For companies with established overseas collections systems finance is provided based on the value of the export sales ledger without the buyer being aware of the involvement of the invoice financier this being invoice discounting. Factoring is used for companies without the expertise to collect in overseas markets full control of the sales ledger and collections service is taken and the invoice financier’s involvement is known.

Exporters that choose factoring benefit from handing over collections as the invoice finance companies either have correspondents around the world who can chase an invoice in the language of the debtor or as RBS Commercial Services does offer the facilities in-house. It is important to collect money owed on invoices according to local business customs in order to maintain good customer relations. Using an invoice finance service also eradicates the problem of differences in time zones language and culture.

Many exporters fail to protect their balance sheet. Credit protection is an integral part of export finance clients can either use their own credit insurance or take advantage of a 100% credit protection option to guard against bad debt. Invoice finance companies also have systems in place which are Euro-compliant. Invoices can be processed and payment made in either euros EU legacy currency (until 2002) and other convertible currencies.

Recent research found over 60% of SMEs plan to develop into overseas markets so it is vital that these key issues are considered before the move is made.

My top 10 tips for exporters are:

1. If you are exporting for the first time or expanding into new markets do your homework. Where possible visit potential customers. ‘Export Explorer’ a UK government scheme implemented via the national business links network has been set up to encourage SMEs to export for instance. It includes guided package tours for first-timers to export markets introductions to potential buyers advice and trade fairs.

2. If visits to the country are impractical talk to your trade ministry your bank manager and other bodies who can provide invaluable information on the market concerned. If possible talk to other companies in your industry for their personal experiences.

3. Do not be deceived by apparently profitable contracts in particular in developing world markets that are economically unstable. You may not get paid because of lack of currency.

4. Consider all payment methods and decide which best suits you. Agree the method of payment in advance and insist on compliance. Always negotiate credit terms before releasing goods and ensure you have the terms in writing.

5. A good method of payment is SWIFT bank transfer – but make sure the customer does not pass the cost of transfer to you. Give your relevant bank details at the time of purchase – this will ensure that payment is smooth.

6. Ensure you have adequate funding in place to finance export debt. To penetrate some overseas markets longer and more generous payment terms are required. You are probably competing with local suppliers or other foreign competitors. This is when you should use invoice finance and credit insurance for greater security.

7. Using an export management company can be an aid to small businesses. They act as export sales intermediaries and representatives for manufacturers by locating foreign buyers promoting products making export sales providing documentation and shipping products overseas.

8. Keep your bank informed of your overseas trading. Make full use of their specialist international services such as foreign exchange risk mitigation.

9. Consider who your competitors are in the export market. Also you must consider providing after sales service monitor standards and legal requirements produce sales literature in local languages and co-ordinate local advertising promotions and exhibitions.

10. Evaluate the amount of senior management time it would require to establish the export venture. A successful move into a new market can be time-consuming and requires the commitment of senior personnel.

Controlling the sales ledger

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