Exporting products internally takes host of critical skills and services including logistical expertise, quality control, and most importantly financial capacity. For exporters, the financial ability to fulfill purchase orders and keep up with demand is one of the key way of growing. But where do you turn when capital is limited? An export business can turn to trade financing to reduce risk, increase cash flow, and ultimately grow.
Trade finance is an umbrella term covering many types of financial services related to trade deals, but one of the most common types of trade finance operates with invoice factoring. International Invoice factoring brings in a third party, like Cultiva Financial, who will pay you a large portion of the purchase order upfront, so you do not have to wait for the importer to pay the invoice. Then when the invoice is finally paid, the reminder of the money is received minus a small commission to the financier.
According to the World Trade Organization, between 80 and 90 percent of the world’s trade is reliant on some sort of financing. By using trade financing, you can grow your export business, and here we will discuss how it can be beneficial to your business.
1. Get Paid On Time
If the business you are exporting to waits 30, 60, or even 90 days until they pay your invoice, you may not have cash on hand to fulfill new purchase orders. Trade financing helps with this issue. With international invoice factoring from Cultiva Financial, you can receive up to 80 percent of your purchase order as soon at the importer verifies the product, so your business is not at a standstill waiting on payment. Then, when the customer pays pays the invoice, Cultiva Financial gives you the rest of the money, minus a commission fee for the service.
2. Check The Credit Of Your Importers
When you first start working with a new importer, you may not know if they are going to pay you once you ship the goods. By partnering with a trade financing company that operates in the same country as the importer, you can work together to validate the credit of the importer to ensure you are working with a reliable company. In this way, you dramatically lower your risks and strengthen your relationships with them.
3. Reduce Your International Risk
Global trade is riddled with inherent risk. Without a physical presence in the country you are exporting to, you are extremely vulnerable.
Trade financing addresses this issue by ensuring the company you are exporting to is valid, and most importantly, having the legal capacity to ensure they do pay the invoice.
4. Increase Your Cash Flow
The primary way to increase profits as an export company is to fulfill more purchase orders. If your company is stuck waiting on payments, it can be challenging to fund new orders and can ultimately impact your profitability. With trade finance services like international factoring, you can not only get paid faster, but turn over more inventory and fulfill more orders, ultimately resulting in more profit.
Trade financing is excellent for cash flow management because you are ensuring that every order is paid. Plus, trade financing is not a traditional business loan; you will not be repaying it with interest for years. You only set up an international factoring deal when you need one, and the fee is paid when your customer pays the invoice. Therefore, you will not need to add a monthly loan repayment to your business expenses, which can add up quickly.
The main goal of trade financing is to help exporters keep their businesses running smoothly. You have a safer way to get financing, so a lot of the risks that come with the exporting industry are mitigated for both you and the importer. You do not have to stress about not getting paid on time, so your business is not stalled by unpaid invoices. If you are interested in trade financing for your export business or need other business funding, contact Cultiva Financial to get started!