Winning an export contract is one thing—financing it is another.
To fulfil your export contract, you may need substantial funds upfront to pay for production costs such as:
- buying raw materials or components
- buying or hiring equipment
- hiring labour
- paying bank fees for contract bonds.
However, payment in an export contract is typically after delivery. And because the exports are transported internationally, the period from starting work to getting paid is usually longer than in domestic contracts. These factors can leave a gap in your cash flow and put severe strain on your working capital, both for export production and for the day-to-day operation of your business.
So how you finance an export contract is something to consider as soon as you begin negotiations or preparation of your tender. What will your cash flow needs be throughout the contract, from initial costs to shipping and final delivery?
If you can’t finance an export contract from funds within your business, you may be able to source some additional working capital through loans from the directors, family members or friends. However, if you need a substantial sum to finance a contract, you’ll probably need to consider loans from commercial lenders or look at ways to manage your cash flow to access additional funds.
The key financial issues are:
How do I borrow to finance export production?
How do I manage cash flow to finance export production?
To find government grants and tax concessions available to you at this stage of the export journey, use the search tool on the right.
How do I borrow to finance export production?
If you’re looking to borrow money from a bank or other financial institution to finance export production, two options are a secured loan or a commercial bill facility. The amount you can borrow will depend largely on the value of the assets that you can provide as security for the loan. Common forms of security are cash, fixed assets like commercial property and equipment and Australian accounts receivable. You may be able to include your export accounts receivable as security for a secured loan, but this depends on your bank’s assessment of the extra non-payment risk of your overseas transactions.
How do I manage cash flow to finance production?
Solutions to improve your cash flow and gain access to funds for export production include:
- converting some or all of your accounts receivable into cash through:
- where possible, negotiating prepayment from the buyer so that you receive some or all of the payment amount upfront.
