Advantages of an Export Overdraft

Transportation processAn export overdraft refers to a financial arrangement that allows exporters to advance the value of their sales invoices to hasten their collection and thereby receive cash prior to their maturity. This of course comes with a fee but one that’s free of debts making it a favorite option among entities of varying industries and sizes.

Using export overdraft has proven monumental if not successful for many and that’s thanks to its various benefits and advantages. Today, we’ll dig a little deeper through each one and find out why this method is the cool kid on the block.

It’s predominantly and significantly quicker compared to other options. Where other financing methods take weeks or even months to process and approve, an export overdraft takes as little as a few day’s time with some providers able to hasten it up to 24 hours.

It’s non-discriminatory in terms of credit score or entity size. Majority of financing options in the market require companies to have adequate asset-based collateral and a strong credit score. This can be particularly tricky for small to medium scale enterprises, startups and recovering businesses. But because an export overdraft is a type of receivables-based financing where the sales invoice is used to derive the needed resources, the company’s credit score or size isn’t the deciding factor. Instead, the creditworthiness of the customer to whom the invoice is attached to shall be the final judge.

It hastens collections and cash receipts. Exporting adds a financial strain to business as it demands more funds for the additional production and labor hours. Additionally, majority of importers choose to defer their payment until goods have been received or resold creating receivables. Although not exactly a bad thing, receivables lock up cash within invoices, holding them up until maturity which can be a threat to liquidity for prolonged periods of time and when in bulk. Because of the way an export overdraft is designed, it allows exporters to expedite their receipt of cash through the advance thereby tying up sales and cash inflows, improving liquidity, and strengthening working capital.

It comes free of liabilities, interests and collateral. An export overdraft arrangement is no liability because it is not one. As an asset transaction, it merely sells the rights (as well as transfers the burden) of collection to the provider for an agreed upon fixed fee or percentage of the total invoice value.

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