For businesses that sell goods internationally, receiving an order is only one part of completing a successful transaction. The company may need to purchase materials, manufacture products, arrange transportation, prepare documentation, and pay suppliers before receiving payment from the overseas buyer.
1. Identify working capital timing gaps
This creates a timing challenge. Even if an order is expected to generate a profit, the business may experience a shortage of available cash while waiting for payment. This is why working-capital planning is particularly important for businesses involved in exports.
2. Map production and shipping timelines
The first step is to understand the transaction timeline. Founders and business owners should identify when production costs must be paid, when goods will be shipped, what documentation is required, and when payment is expected. They should also understand the agreed payment terms and the circumstances that could delay payment.
3. Quantify total order fulfilment capital
Next, estimate the cash needed to fulfil the order. The calculation should include relevant production, labour, packaging, logistics, insurance, documentation, and other expenses. Businesses should also consider the effect of currency movements and unexpected delays where relevant.
4. Select suitable trade finance instruments
Export finance arrangements may help eligible businesses fund particular stages of the transaction. The right option depends on the company's financial position, buyer creditworthiness, contractual terms, transaction structure, and the products available from financial institutions. Each option should be evaluated carefully, including its cost, eligibility requirements, and repayment obligations.
5. Mitigate counterparty and foreign exchange risk
Risk management is equally important. Businesses should assess the reliability of buyers, maintain accurate documentation, understand their contractual rights, and seek appropriate professional guidance when dealing with unfamiliar markets or complex transactions.
A business should not assume that every export order is financially safe simply because it has a positive expected margin. The timing of cash inflows and outflows can determine whether the company can fulfil the order without placing excessive pressure on its operations.
