Posts tagged: export overdraft

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.

The Benefits of an Export Overdraft Arrangement

OverdraftDomestic sales can only do so much. The lure of international trade is real and the reason behind it is obvious, out there in plain sight. Opportunities abound but so do challenges; for instance financial risks, liquidity and collection. Luckily, there’s this thing we call an export overdraft arrangement.

An export overdraft is a type of financing particularly directed at entities that wish to take advantage of the world market without having to undergo the usual repercussions or threats that accompany it.

To export means to abide by international trade protocols and country-specific laws. It requires meticulous documentation, new market penetration, added collection responsibilities and of course the ability to dodge credit, interest rate and foreign currency risks. Let’s not even get started about receivables and cash availability.

But despite such challenges, entrepreneurs still want to do it. The cons may be present but so do the pros and they abound just as much if not more. But a smart business owner will want to mitigate such risks and challenges to the best they can. After all, who wants them tagging along with success? Nobody.

Export overdraft is a method that allows exporters to advance the value of their export sales invoices thus allowing them to receive cash almost immediately without having to wait for maturity. More often than not, receivables will lock up cash for prolonged periods of time preventing their immediate use and at times putting liquidity and solvency at risk. The longer a receivable remains outstanding, the higher the risks of non-collection. Cash sales are still there but majority of importers opt for deferred payments. They prefer to pay only until the goods have arrived to them or until they have been resold.

Because cash is received immediately, there’s less likelihood of losses due to the fluctuation in foreign currencies and delayed or default payments. Moreover, the duties related to collection shall be borne by the export overdraft provider. This includes all administrative duties and paperwork related to the job. Of course, this provides utmost ease for companies not only in terms of time and effort but also resources.

Export overdraft therefore also helps entities focus more on the income generating activities and operations instead of the backend duties. Plus, providers having had experience and expertise will often have a better grasp about a particular country’s culture, language and laws when it comes to invoices, payments and collections.

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