When manufacturers face long payment cycles, this can spell trouble. This is especially true for first-time exporters.
Without careful planning, companies beginning their export journey can soon find that they have insufficient cash to cover multiple costs. These costs include:
- building and equipment overheads
Also, exporting manufacturers also must consider costs associated with the supply chain, including freight and insurance.
“People often regard exporting as a challenge because of finding overseas customers,” comments Paul Daine, Managing Director of Premium Collections. “In fact, cash flow can be a far more pressing issue.”
Growing Pains and Cash Flow Problems
“Businesses will typically seek to drive greater cost reductions to meet customer pressure for better value,” Paul observes. “However, inventory costs can contribute to a reduction in working capital.”
“A manufacturer may find that while they are ready to grow, the demands of growth brings with them certain problems, and pains”
If, for example, an overseas customer ends up awarding a business a major contract far greater than the company’s domestic value then this provides an opportunity for growth.
However, it may also mean that the business needs more capital to meet this new demand, or face a shortfall.
As Paul points out, complexities in the supply chain may then exacerbate this problem.
“As an exporter, you can then find that the whole process slows down your cash flow,” warns Paul. “While you need more working capital upfront, you’re also not recouping cash quickly enough, dragging you further into debt.”
Recovering Debt as a Cash Flow Strategy
Whereas organisation and planning are crucial to helping businesses grow in export markets, the issue can come down to collecting money owed to make sure they maintain working capital.
“As part of a cash flow strategy, manufacturing exporters should consider international debt recovery not as a last resort, but rather, as another arm of their operations”
Managing international payments has its risks, from currency issues to local political problems, alongside corruption and the risk of non-payment.
“As part of understanding and managing your risks as an exporter, you must consider how you can secure your cash flow,” suggests Paul.
“Yes, familiarise yourself with finance sources available to you, and get your cash reserves in place. But be prepared for issues to arise, and know what action you will need to take to recover your debts overseas,” Paul concludes.
For an additional read, please visit, Exporters: How Trapped is Your Overseas Cash Flow?