How to support your business as you go international
Deciding to expand and trade internationally can be a very exciting time for your business. However, it also presents a number of daunting challenges, especially when it comes to supporting your supply chain. But with access to sufficient amounts of help and support, you can ensure that your business is well prepared and able to succeed. This is why many SMEs and established corporations seize upon opportunities overseas using Trade Finance. So if you’re looking to extend the reach of your business, read on to find out how Trade Finance could help you overcome the barriers standing your way.
What is Trade Finance?
As well as political and economic turbulence, there is any number of challenges you could encounter when buying and selling on the international stage. The most common issues usually involve your supply chain, which could be delayed for a variety of reasons, including slow processing of your order, customs and regulatory procedures or even late payments from the end customer. But by choosing to apply for Trade Finance you can smooth out the process, enabling you to tear down these obstacles and retain the integrity of your finances. This is achieved by granting your business access to two types of funding: Purchase Order Finance and Invoice Finance. However, in order to make an informed decision for your business, you must be aware of when and where in the process these products could prove invaluable.
How do I support the purchase of goods?
If you’re looking to purchase goods and supplies from a company trading in another country, you must pay for the order upfront to get the ball rolling. However, whilst the order is being processed and passes through customs, you could be left waiting for it to arrive for as long as 30 days, or possibly longer. This means you’re out of pocket until the goods have been delivered, depriving you of vital funds that could have been used in other areas of your business. But, there is a solution.
Purchase Order Finance allows your business to receive an advance on the back of an agreed purchase order. Although applicable for a variety of purposes, in this scenario it can be used to help pay an agreed percentage of the costs demanded by your supplier. Despite there being no set limit dictating how much your business could be advanced, lenders will take into account your sector, the amount expressed in the purchase order, the supplier dealing with the order, the end customer and any additional costs. As soon as the product has been agreed, with the advance following soon after, the end customer will have up to 120 days to resolve the debt, depending on the terms of the agreement. Once this has been done, the lender will then release the remaining amount expressed in the purchase order to your business, minus service fees and interest.
If this is a product that holds clear advantages for your business, it’s worth noting that possessing an adverse credit rating may not always be an issue, but will affect how much interest you’re charged. The reason for this is that lenders tend to focus on 2 key areas of your application, which are:
- The purchase order agreement - which should specify the quantity and exact cost of the goods you’re purchasing.
- The creditworthiness of your supplier and end customer(s) - which should express, among other factors, how reputable they are and whether they have a history of resolving their debts on time.
How can I support a late payment from my end customer?
Having one of your customers place an order with your business but then fail to pay when the time is due can be frustrating for any business. But when it involves international trade and recovering the expense paid to your supplier, the pressure this places upon your business’ finances is even more intense. Yet, rather than sit idly, you can do something about it. If you agreed to accept payment from the end customer using a B2B (business-to-business) invoice, you could receive up to 90% of the capital contained within it using Invoice Finance, which will give you up to 120 days to be repaid by the end customer. If your business could use the support of an Invoice Finance agreement, there are two types available:
- Factoring: requires your business to possess a minimum turnover of £100,000 and maintain up-to-date ledgers. However, although you must show the ability to run effective credit control procedures, Factoring does give you the option to allow the lender to pursue the end customer on your behalf. In addition, some Invoice Factoring lenders may also offer you Bad Debt Protection, safeguarding your business in the event of the end customer failing to repay what they owe. Once the customer has settled their debt, the lender will release the remaining amount of the invoice, minus services costs and interest, back to you.
- Discounting: on the other hand, this option requires your business to have an annual turnover of at least £25,000. You also have to maintain up-to-date ledgers and collect the debt from your customer using your internal credit control procedures. But, instead of the end customer making payment to your business, they’ll pay directly into a lender-controlled facility. As soon the end customer has fully resolved the debt the Invoice Discounting lender will release the remaining amount of the invoice, minus services costs and interest, to you.
Thinking of trading on the international stage?
Taking your business to the next level and becoming an international firm means that you’ll be in a great position to take advantage of opportunities in other global economies, providing you’re able to overcome the challenges that come with it. But if you’re eager to expand your business’ horizons and achieve your full potential, you can support your vision with the aid of Trade Finance. All you need to do is source an agreement appropriate for your business, which is where discussing your plans with an experienced business finance professional could prove invaluable.
At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to trade overseas, apply for Trade Finance today or find out more with Rangewell.