Advance payment is passport to international growth

Liverpool-based Stewart Group carries out mineral analyses on samples sent to it by a network of offices and laboratories around the world. In all, around 90 percent of group revenues come from abroad. And in addition to 14 trading units around the world, the company exports equipment to customers wanting to perform their own analyses.

All of which, explains group finance director Christopher Fisher, poses a complex mix of international trade finance challenges. Some customers prefer to pay in dollars, others in euros. Some prefer ‘Cost Insurance and Freight’ payment terms for their equipment, others ‘Free on Board’. And some pay 30 days after receipt of analysis certificate, while others pay within 90 days.

“Ideally, we like a substantial payment upfront and for the customer to pay the costs of shipping the equipment,” explains Fisher. “But in a highly competitive market, you have to be flexible.”

More flexible, perhaps, than many businesses realise – especially those that are relatively new to venturing overseas.

“It’s about generating working capital by accelerating receivables and delaying payables,” Simon Enticknap, head of trade sales for large corporates at Lloyds Banking Group, explains.

Currency fluctuations are an obvious challenge. One in three UK small-to-medium sized exporters cite currency fluctuations as their top concern in conducting overseas trade, observes Rocco Magno, director of international payments at American Express Global Foreign Exchange Services. Despite this, as many as 56 percent of SME exporters do not manage their financial risk at all, with just 44 percent protecting their margins against fluctuating rates.

Cashflow can also be unpredictable, says Miguel Zapata, a principal adviser at KPMG.

“Standard payment terms vary widely,” he says. “There’s a wide spectrum – from 14 days with a two percent discount in Germany, up to 120 days in Spain and 180 in Italy. And don’t overlook the cultural dimension, either. Dunning letters (letters of collection) tend to be effective in some countries and useless in others – similarly with phonecalls.”