How to find working capital
Obtaining extra security
The Export Finance and Insurance Corporation (EFIC) provides specialist finance and insurance services to Australian companies exporting and investing overseas.
An EFIC product of particular interest to SME exporters is Headway, a guarantee from EFIC to a bank on your behalf. EFIC provides security to a bank that will lend additional funds, without any need for additional security.
Specially designed to enable SMEs to grow their business when facing a working capital shortage, EFIC Headway is available as an extension to the facilities currently on offer from an existing bank. It is designed for general export funding rather than a specific export transaction or contract.
Pyrgiotis says: “Headway is just one part of our product offering to exporters but is the simplest to execute and relies on a collaboration between EFIC and the exporter’s bank.”
Already a successful product, Headway “is experiencing a significant increase in demand presently due to the current economic climate and the scarcity of capital, and bank’s position in preserving capital and credit constrictions,” he adds.
When should an exporter look into Headway? Says Pyrgiotis: “An SME exporter should approach EFIC, along with their other advisers such as lawyers, accountants and bankers, as soon as they have decided to bid on an export contract. Often, exhausting all other avenues of finance will take a lot of time and the exporter may in fact have run out of time before they get to us only to find that we may have been able to help earlier in the process.”
EFIC’s mandate stipulates that they cannot compete with the banks, Pyrgiotis advises exporters to include EFIC in the early stages “where we can actually sit at the deal table alongside the banker striving for the same objective”.
He adds: “Because our global network is so vast, we can assist with information about certain country risks and or other global factors the exporter may not be aware of. We also have a vast network of alliance partners domestically where we can direct an exporter to take advantage of any other government, non-government, or semi-government initiatives for exporters in their particular industry or state.”
Tips to find working capital
- Carefully negotiate payment terms.
- Always try to get a sizeable upfront payment to ensure cash flow in the pre-shipment stage of the contract. EFIC may be able assist via their Advance Payment bond solution. Even if the buyer agrees to pay by letter of credit few, if any, banks will provide pre-shipment funding facilities, that is, they won’t extend finance beyond their regular facilities.
- Prepare detailed cash flow projections for the export contract as well as for the company using conservative assumptions to ensure that adequate working capital facility limits will be available. It is critical for exporters to speak to EFIC and/or their bank to address funding gaps.
- Stretch your creditors’ payment terms as far as possible.
- Negotiate payment by letter of credit wherever possible to negate buyer payment risk and to enable the exporter’s bank to bring forward payment via negotiation of the letter of credit.
- In the absence of a letter of credit, when in doubt about the creditworthiness of the customer, take out insurance on the export receivable to protect against failure by the buyer to pay as and when due.
- Consider invoice discounting to fund the post-shipment stage of contracts.
- Consider using EFIC Headway to obtain additional working capital from the bank without the need for additional security.
- Consider using EFIC’s Performance and Advance Payment bonds as a means of negotiating better payment terms without utilising valuable bank working capital limits.
—Source: EFIC (www.efic.gov.au)
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