Page 68 - Export and Trade

Finance

internationalbusiness,thepicturecanbecomplicated receipt of the cash in respect of their subsequent
by elements such as risk, currency and the payment UHVDOHFDQSXW DVLJQL¿FDQWVWUDLQRQDQLPSRUWHU¶V
mechanism. resources.
Seasonal peaks, long transit times and lengthy
The trade cycle credittermsall addtothedemandsontheimporter.
Everycompany’stradecycleisunique,although ,W LV LPSRUWDQW WKDW WKH ¿QDQFH WR PHHW WKHVH
therewillbeelements(e.g.purchasing, ÀXFWXDWLRQV LQ WKH LPSRUWHU¶V ZRUNLQJ FDSLWDO
PDQXIDFWXULQJ VKLSSLQJ FUHGLW HWF ZKLFK DUH requirements is geared to the terms and method
common to them all. Each stage in a trade cycle of payment agreed between buyer and seller. This
places different demands on a company’s finances may require a combination of facilities. For example,
but a key component in determining the overall documentarycreditfacilitiesmightberequiredto
level of working capital required for any business cover the pre-shipment period whilst post-import
isthetimetakenbetweenthestartofthecycle ¿QDQFH FDQ EH REWDLQHG WKURXJK DQ LPSRUW ORDQ
L H RUGHULQJJRRGVRU UDZPDWHULDOV DQGUHFHLSW
of payment for corresponding sales of finished ([SRUW ¿QDQFH
products. Financing the post-manufacture/sale period is an
important consideration for any exporter. The method
6KRUW WHUP EDQN ¿QDQFH FKRVHQ ZLOO EH LQÀXHQFHG E\ D QXPEHU RI IDFWRUV
Overdraft •The termsoftrade.
Themostobvious,butnotnecessarilythemost •The paymentmechanism.
appropriate, method of financing international trade • The availability of export credit insurance.
isthroughabankoverdraftfacility.Overdraftsare ‡ &XUUHQF\ DQG FDVKÀRZ FRQVLGHUDWLRQV
availableinmostmajorcurrenciesanditisclearly Most exporting companies sell their goods on terms
very simple and convenient to overdraw within an which typically do not exceed 180 days and where
agreedfacilityandthentoreplenishtheaccount the payment mechanism will vary from Open Account
with payments received. through Bills for Collection to irrevocable Documentary
However, it is unlikely that importers and exporters Credit. With longer term transactions, secure payment
FDQ¿QDQFHDOOHOHPHQWVRIWKHLUFRQWUDFWVHQWLUHO\ mechanisms are usually demanded by the seller.
from an overdraft, particularly as borrowing in this Financing export receivables separately from other
way may be more expensive than other forms of short-term cash requirements makes tracking export-
VSHFLDOO\ GHVLJQHG ¿QDQFH 2WKHU GHPDQGV RQ WKH UHODWHG GHEWV VLPSOHU DQG E\ KDYLQJ DQ LGHQWL¿HG
overdraft may constrain the amount of working capital source of repayment, banking facilities can become
available for business growth which is typically when more accessible.
thecompanyneedsitmost. Whilst some facilities are undertaken with recourse
to the exporter, transactions covered by credit
,PSRUW ¿QDQFH insurance or where payment is made via Documentary
The time between placing an order for goods and &UHGLW PD\ EH VXLWDEOH IRU QRQ UHFRXUVH ¿QDQFLQJ

66 NZ Export & Trade Handbook 2018