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Export / Import Information for Small Business Owners in Australia

Export Risks

Getting Paid.

It's the whole purpose behind running a business, whether it's a cash transaction between customer and employee at the point of sale, or a customer overseas paying for goods exported to them. Of course, the latter example is much more complicated, but with careful planning and the right steps taken, it can run as smoothly as a face-to-face sale. Here we will examine the financial export risks and how to ensure you avoid them.

What Can Go Wrong?

Running a successful export business unfortunately carries along with it certain export risks, the most important risk involved is the proper transfer of funds. This involves every step of your export strategy. Most businesses need a bank to loan them money to pay employees, or to purchase materials to manufacture their products. Most companies you will be exporting to, also need a bank to loan them the money to buy your product. Before any product has been shipped, there are already two risks involved on either end of the exporting spectrum.

When exporting, typically there are terms involved between buyer and seller. What this means is your customer will be given 30, 60 or 90 days to pay for the goods you shipped them. Now apply that same step to each link in your supply chain, from each material provider you depend on, to your company's bank. You may have balances in multiple states of credit from all sources in your export plan, which can be very complicated unless you take the steps to protect your business from such export risks.

Take the example of the fictional “Better Beans Company”. They offer a line of whole-bean coffee products from rare, hard to find sources around the world, and export them to France. The owners of Better Beans Company visited France with samples, and found a very solid market there. Taking risk into account, but positive their buyer would pay fast, Better Beans went ahead and took out an AUD$50,000 loan and began buying coffee beans from exporters, and a contract to a domestic company to manufacture packaging. Better Beans was given a 30-day letter of credit from their suppliers, and they accepted based on the special pricing they were being given. However, they gave their buyers in France a 90-day letter of credit as a courtesy, hoping to gain a steady buyer overseas by offering better credit than the competition.

The day their first shipment arrived in France, Better Beans received a bill from their shipping company. They had forgotten that the terms with the shipper were due upon delivery. They made the payment but this put the start up company in further debt and prevented them from making their second shipment right away. The buyer in France was expecting two shipments as part of their agreement. The buyer held their payment for the full 90 days, but Better Beans Company received a notice from their bank that their suppliers were now demanding payment on accounts that were now 60 days past due. Better Beans' bank would not loan them any more funds. They were forced to cease operation and their dream had failed.

This story of the fictitious “Better Beans Company” doesn't have to be the story of your business. In fact, all it takes is proper planning to avoid these export risks:

  • Make sure you offer terms to your buyer that will allow you to make payments to your bank in time.
  • Try other methods with your buyers, like mandating down payments prior to shipment.
  •  Cash-in-advance – your buyer must pay the entire balance prior to shipping.
  • Try not to be over eager in taking out loans, like the “Better Beans” company did. Plan your finances around what the company can afford and be sure to plan out strategies in the event that you don't receive payments in the time you initially set.

The biggest export risk in this lesson is the payment you receive from your buyer. While “Better Beans” decided to offer extended payment conditions, thinking that would win over a potential long term buyer, it is more important that you make more careful decisions at first. Your company can always reward a long term buyer after they have proven their creditworthiness and loyalty.

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