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Financing Your Export Sales
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Financing Your Export Sales
Each of the four international methods of payments, discussed previously, can have an impact on your company’s financing needs when filling overseas orders. Those can be broken down into either pre-shipment or post-shipment working capital needs.
Pre-Shipment: If you receive a purchase order from a foreign buyer, you will have a pre-shipment working capital need (the funds to hire labor, buy supplies and materials, etc., to produce the order), assuming you don’t already have the goods in inventory. Two exceptions would be if:
- you require cash-in-advance before you start production; and/or
- you receive progress payments throughout the production cycle.
If your payment terms are simply cash-in-advance prior to shipment, or even a letter of credit that is payable upon shipment, you still will need to fund the entire pre-shipment production cycle. Can you complete the order in 15 or 30 days, or is it for a customized piece of equipment that might take nine months to build? The pre-shipment working capital need could be substantial depending on the size of the order and the production cycle.
Post-Shipment: If you don’t get paid upon shipment, you will need to carry accounts receivable on your books. Perhaps you have enough working capital to fill an order with a short production cycle, but you might have to offer 90-day terms to the buyer in order to secure the contract. In that case, you may need additional working capital to keep the business operating and to support the foreign A/R during that time.
Two possible solutions are that you might be able to factor the accounts receivable using a commercial factoring company, or you could insure them through a private insurance company or the Export-Import Bank of the U.S. (Visit: www.exim.gov), which would move the risk from the foreign buyer to the U.S. government or larger insurer. Many lenders allow exporters to borrow against insured overseas A/R.
So, how can you finance your pre-shipment and/or post-shipment export working capital needs? The SBA has three loan guaranty programs that might work for you:
- Export Express ($500,000 maximum) which is ideal for new exporters or those with relatively small orders. In addition to providing working capital for developing export markets or funding export transactions, these loans also can fund the purchase of fix assets used in the production of goods or services for export;
- Export Working Capital Program ($5,000,000 maximum), which may only be used to finance export transactions—typically all direct costs from purchase order to collections;
- CapLine Program ($5,000,000 maximum) which is a revolving line of credit that can support the working capital needs for both domestic and foreign sales made on open account terms (foreign A/R must be insured).
Please, visit www.sba.gov/international for details on, and a list of lenders active in, these programs. You also will find a listing for SBA’s trade finance specialists located in 19 U.S. Export Assistance Centers across the country that can provide additional information on export financing questions.