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Easing the impact on cashflow when exporting goods and services

Darren Rigden, Partner, Audit
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Exporting puts additional pressures on working capital requirements of businesses. This is primarily due to the additional time it takes for the ‘cash cycle’ to complete its natural course. Exporting typically creates longer delivery times, delays in receiving payment due to additional red tape and is affected by currency fluctuations. The good news is that the impact of these can be mitigated with the right planning.

Improving efficiencies in the process

The key to speeding up the receipt of payments is to ensure paperwork is properly considered and prepared, clearly setting out who will be responsible for the goods at what point. This is important for both commercial and insurance purposes. Using the correct International Commercial Terms (Inco terms) is essential in this respect. Mistakes and poor communication can delay payments and damage goodwill with customers. Given businesses will often be working with people whose first language is not necessarily English, there is plenty of scope for misunderstanding.

The contract or sales agreement must be clear on when the payment is required and how this will be made. Most importantly this must be clear in terms of what is included in terms of carriage, tariffs and insurance.

Businesses should also try to request deposits and interim payments whenever feasible although clearly the strength of relationship with their customers will influence whether this is possible.

Consulting with local tax specialists will ensure that businesses are aware of local taxes and tariffs thereby protecting profit margins. Businesses should consider advisors who work – or can call on a network of specialists – cross borders and understand the different ways of working.

Organisations looking to export should also check whether an export licence is required to do so. This can be done via the government’s website or through local chambers of commerce.

Other risks

Trading overseas means that organisations need to be aware of any political risks and other threats to business (such as natural disasters for instance) in a country where it wishes to trade (or indeed in those countries through which their goods must travel). Issues such as these can further hold up delivery, and hence payment, significantly. Additionally, reviewing and diversifying customers and suppliers is not only good business practice, but it can help reduce risk when exporting.

Foreign exchange (Forex)

Forex and currency fluctuations can naturally impact further on a business’s cash flow. Many will look to use a natural hedge wherever possible. This consists of buying and selling in the currency of the country in which trade is taking place as much as possible. Alternatively, there are lots of forms of hedging available, should this not be possible. It is worth bearing in mind however that some are very complex and require significant insight into the product or service before being used. Again, seeking specialist advice is vital, as using the wrong product could leave you without sufficient cover, or could cause significant additional cost.

Guaranteeing payment

Surprisingly, 85% of businesses rely purely on ‘open account trading’. This effectively amounts to sending the goods and hoping the customer will pay in due course. This is a a risky form of trading, particularly where clear contracts are not in place, or the reputation of the recipient is not clear.

Letters of credit are frequently used where goods are traded internationally. In these circumstances, a bank will provide a letter guaranteeing payment, subject to the provision of the correct shipping documents. However, this comes at additional cost and if the paperwork, which can be quite complicated, is not completed correctly, the payment may be delayed and the letter invalidated. Help can be obtained, and this is recommended, from freight forwarders and other specialists.

In some cases it might be appropriate to obtain a performance guarantee. This effectively guarantees that the product is of a certain quality and specification and should help speed up the cash cycle by reducing the number or queries and rejections from customers.


In terms of funding, a trade loan facility can be obtained which can cover working capital requirements and can be used for individual contracts. This is often better than extending an overdraft facility as it can cover a greater level of funding.  The provider will typically have greater visibility over what the money will be used for and is often fully repaid in a shorter timescale. This helps to keep costs down for the borrower. It is also useful if a business wants to separate pots of money or funding into separate individual projects.

While exporting can put pressures on working capital requirements as they extend the typical cash cycle, businesses should not be deterred from considering overseas markets for their products and services. With careful planning and specialist advice, organisations manage these pressures and take full advantage of the new markets and customers available to them.

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Darren Rigden
Darren Rigden
Partner, Audit and Business Solutions