9: Obtaining finances/resources for your exports
9: Obtaining finances/resources for your exports
Why do you need finance?
OK, your export plan is in place and you are ready to start. Perhaps the first step on the road to export is to give consideration to how to finance your exports. We said right at the beginning that exporting
is a complicated and expensive process. It requires time,
considerable planning, extensive research (much of it
overseas), highly skilled staff, product adaptations,
international travel, expensive international promotions,
management involvement, etc. At the same time, your prices
(and margins) are often keener in export markets and your
payment terms may mean that you only get paid in 30, 60,
90 or 120 days (even longer where capital projects are
involved). Together this translates into high expenses
and slow income. Cash-flow is often a major problem facing
the smaller exporter.
When do you need financing?
You will need financing almost from the
moment you decide to get into exports. These financing
requirements can be divided into four parts (the first
three are the pre-contract phases, while the last stage
is the post-contract phase):
- Financing to get you through steps 1 to 6 of our export
process- At this early stage, very little financing
is required. You may need to do some research on the
Internet and spend some time with your planning and
SWOT analysis. Your expenses are more related with the
time you need to put into the planning and preparation
process than with actual outlays on travel, research,
promotion, etc. You should be able to cover these financing
- Financing to help you with your export marketing research
efforts (step 7)- This is the stage where you take a
lot of time and effort to select your target countries
and to better understand the target market you wish
to enter. Your expenses will probably be related to
a failry extensive desk-research effort (which may involve
buy various trade magazines, directories, newspapers
and other sources of information), as well as at least
one visit to the target market where you may spend a
week or more researching the market from within, speaking
to industry associations, chambers, potential buyers
and, more than likely, visiting a trade fair or two.
If you plan your research carefully, you may be able
to achieve all of your in-market research goals in one
visit. A second visit may, however, be desirable, while
larger companies may want to acquire the services of
professional research agencies which would push up the
price considerably. It is very difficult to estimate
accurately what a trip like this would cost, but a realistic
estimate would be between R25 000 and R50 000 for ten
days to two weeks of in-market research. At this poitn
you may already need to consider finding financing for
this research (the DTI provides assistance to smaller
exporters for their in-market research efforts).
- Financing to help you implement your export plan (step
8)- Based on the research you have done, you will prepare
an export plan. Thereafter, your next step is to implement
this plan - this is where you are now! This is another expensive step in the export
process. This will involve promoting your products over
the Internet, via direct mail, through advertisements
in trade magazines, taking part in one or more trade
fairs and visitng potential buyers. It is highly unlikely
that you will be able to achieve your objectives without
visiting the market in question. Indeed, it is suggested
that you will need to undertake at least two or three
visits to the market before your marketing has any effect
(if at all). The cost of these trips could easily amount
to R25 000 per trip, with three trips costing you R75
000 or more. Add to this the advertising you have done,
then it is not unrealistic to consider spending R100
000 to R120 000 during this phase of the export process.
- Financing to help you achieve your contractual obligations
(steps 9-18)- Assuming that your marketing effort has
paid off and you have secured a contract. Your next
step is to produce the goods, package and label them,
ship them off to the customer, provide the agreed-upon
service and wiat for payment. This is perhaps the costliest
part of the whole process and is very difficult to estimate.
It may cost you hundreds of thousands to millions of
rands. This will be the stage where your financing needs
are the most acute. It is also likely that this will
only take place about two years or so from starting
down the road of exports and you may find that you have
already spent R100 000 to R250 000 (and more) to secure
What are your financing options?
- Banks - There are a number of sources
of financing. The most common source remains the banking
institutions. In this section, we will deal with how
you should approach your bank for assistance with financing. Click here to learn more.
- Payment methods as a means of financing exports -
In exporting there are also different payment methods or options
that you can follow and each payment option has different
implications for your cash-flow - we examine these payment
options as a source of financing. Click here to learn more.
- Payment terms as a means of financing exports - Payment terms has to do with the contractual requirments that you negotiate with the foreign buyer and has to do with the method of payment (discussed above), when you will be paid (incorproating any credit terms you may extend to the buyer) and for what you will be paid.
- Pricing as a financing mechanism
- The price that you charge for a product also has an
impact on the money you earn and the financing you require.
We therefore examine pricing as a means of financing.
- Cashing in on export receivables - If the foreign buyer owes you money, you can turn these 'receivable' into cash. Click here to learn more.
- Foreign currency loan - Although not a common source of financing for the avergae exporter in South Africa, a foreign currency loan is worth considering for large-scale capital products. Click here to learn more.
- Alternative sources of financing -
Finally, there are several alternative sources of financing
that you might want to consider, including getting finance
from the Industrial Development Corporation, obtaining
overseas financing, getting help from the buyer, your suppliers and even from your intermediaries.
- Export risk - The question of export
risk also affects your financing requirements. After
all, the lower your risk, the more likely the banks
will be to finance your operations. We therefore take
a look at export risk as a means of lowering your finance
risk. Export risk is a multi-faceted topic which
discuss in a separate section. Click
here to learn more about export risk. Related to the issue of export risk, is the question
of exchange rate risk and we also look at how you should
deal with exchange rates in your export dealings.