Export Financing Explained: How to Protect Your Cash Flow When Expanding Overseas

Global enterprises want to diversify their supply chain, looking beyond China for offshore labour, supplies and products — a strategy known as “China plus one”. They don’t need to look far; Asian countries like Singapore, Malaysia, Indonesia and others comprise “Altasia”, representing viable alternatives to China as production bases for cross-border manufacturers. As of September last year, Altasia exported over S$85 billion worth of goods to the US, slightly surpassing China’s export value of S$82.5 billion.

As buyers cast wider nets across Asia, your SME can capture opportunities from this shift in the global supply chain. But supplying to other markets requires access to capital. One way to do so is through export financing.

What is export financing?

Export financing provides monetary support that allows businesses to participate in international trade. It particularly helps exporters rise above the difficulties and pitfalls of selling their offerings to buyers abroad. 

In this type of financing, the agreement rests between the financing platform and you, the business owner. Say you export perfumes to Malaysia, and give your buyer a 60-day payment term. The financing platform assesses your credit-worthiness, your relationship with your supplier, and the risk involved in providing funds. You then submit your funding application — and once it’s approved, the platform lends you cash up to a percentage of your buyer’s purchase, based on the invoice. You later repay the funds depending on the terms of agreement. 

Why SMEs use export financing

Export financing becomes a practical option when a lack of funding nips the promise of growth and expansion in the bud. This is because SMEs have to contend with challenges when expanding their capacity to handle overseas clients: 

• Cash flow unpredictability

SMEs usually have limited funding access and financial resources compared to bigger businesses. Erratic revenues due to postponed payments, sudden expenses, and market dynamics may easily disrupt their businesses. 

• High production costs & inflation

The rising costs of raw materials, salaries, rent, and utilities can impede cash flow. This is especially challenging for SMEs who want to lower operational expenses. Inflation also limits consumers’ purchasing power, which may lead to decreased sales. 

• Inventory management

SMEs need to predict the appropriate volume of goods to stock effectively because of their limited capital. They need to strike the balance between cost efficiency and meeting customer demand. Too much stock restrains working capital, while understocking means you have little to sell. A lack of finances may also result in insufficient tools and technology to monitor and assess inventory information accurately.

• Seasonal demand

If your SME is tied to industries with demand fluctuations like tourism and retail, managing inventory requirements may be a problem. Poor cash flow and supply chain bottlenecks can occur during high seasons, so careful planning is necessary.

How export financing supports overseas expansion

Fewer businesses in Asia Pacific reported overdue invoice payments in 2022 compared to 2021, according to a survey of businesses across the region, conducted between November 2022 and April 2023. But for those that did see overdue payments, the length of the delay increased. Late payments impede cash flow for businesses, and may prevent SMEs from having enough funds for expansion.

Export financing gives you a way to tap a reliable source of cash, freeing up your funds for production, working capital, and international trade requirements. 

Here are other potential benefits of export financing for SMEs:

• Bridges the financial gap 

Export financing lets you continue operations without waiting for overseas customers. With upfront capital and customised loan programs, you ensure business funding even before your goods and services are delivered and paid for. 

• Lowers risk 

Export financing protects your finances if the customer suddenly faces financial difficulties, resulting in late or non-payment. Through insurance and other forms of guarantees, export financing ensures that you still get paid for your overseas shipments. This fallback gives you confidence and support while conducting international trade.   

• Sharpens your competitive edge 

As a new exporter, you may want to win over buyers by offering attractive payment schemes, such as longer deferred payment terms to attract importers. Export financing provides you with access to financial resources despite the postponed payout. 

• Enables business expansion 

As export financing gives you access to working capital, you can invest in new offerings and markets to scale up. 

Types of export financing from different financial providers

Depending on your needs and qualifications, you can get export financing from traditional banks, government programmes and alternative finance providers.

Export financing from the government 

The Enterprise Financing Scheme – Trade Loan (EFS-TL) programme supports companies with at least 30% equity held by Singaporeans and an annual sales turnover of S$500 million and below.  

It provides financing for various needs, including inventory, revolving working capital, bill of invoice, overseas working capital loan, and bank guarantees. Government loans typically have lower interest rates and friendlier payment schemes, with the maximum loan quantum at S$5 million per borrower and maximum repayment of a year. EFS-TL ensures secure loans because the programme partners with reputable financial institutions, including banks and private lending firms.

Export financing from lending institutions and FinTech (financial technology) companies

FinTech platforms like Funding Societies provide financing for SME buyers and suppliers. Some platforms specialise in flexible financing schemes for underserved areas, empowering entrepreneurs in underserved communities.

While their expertise caters to SMEs by providing customised funding solutions and a hands-on approach, these financing companies also allow faster and easier capital access because of fewer requirements, digital application process, and data-driven evaluation methods. If you wish to skip the tedious paperwork and in-person applications, borrowing from these institutions is desirable.

Export financing from banks

Banks provide a wide range of export financing solutions, such as export credit, trade insurance, factoring, and lending letters of credit (LC). Because of their established reputation, they conduct background and due diligence checks and a positive credit score from clients.

Bank loans are ideal for exporters dealing with high-volume goods because of lower interest rates. Their strict regulatory frameworks also ensure loan transparency and standardised paperwork. Some find lending from a bank convenient because it gives them access to supplementary services like credit cards and savings accounts.

Tips for choosing a suitable export financing scheme

What is the right loan and lender for you? Here are some tips to assess your options:

• Determine the financial assistance you need for exporting.

Review your export goals and the export financing requirements needed to accomplish them. Study how much capital you need and how soon you can pay the loan. With these, you can decide if your business can accommodate the costs and possible risks of export financing. 

• Evaluate the benefits and risks of export financing schemes vs other available financing options.

Research export financing products available in the market. Understand how each product works, as well as its terms and conditions and eligibility criteria. Study the repayment schedule, any penalties or fees for early repayment or late payments, and other contractual obligations. 

• Consider lender reputation.

Carefully evaluate the reputation and reliability of the financial institution offering the product. Look for well-established institutions with a record of providing export financing services and good customer support. Funding Societies, for one, has achieved S$4.1 billion (US$3 billion) in SME lending, with more than 5 million transactions across Southeast Asia.

Positioning your SME for “Altasia’s” emergence

SMEs in Singapore and the ASEAN region should be well-placed to take advantage of “China Plus One” — if you can overcome financing growing pains that often stop other SMEs from expanding their operations. With export financing services and financing options like Accounts Receivable Financing and Supply Chain Financing, you can quickly access working capital to fulfil expansion plans while mitigating export-related risks. Take advantage of the supply chain’s shift to “Altasia” and capture the opportunities that await you in the global marketplace. 

Use your unpaid invoices to enjoy smooth cash flow with Accounts Receivable Financing today! By letting us streamline your operational costs, your business can start to thrive and grow.

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Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorised third party.

Accounts Receivable Financing is fulfilled either by Funding Societies Pte Ltd, or FS Capital Pte Ltd (in partnership with Enterprise Singapore), depending on the customer profile.