One of the secrets to export success is simple – planning! Having a solid plan helps you predict trouble spots and address them early on. Being poorly prepared not only affects your company’s performance abroad but could harm your domestic operations too. Fortunately, all that can be easily avoided with a well-developed export plan.
An export plan is essentially an extension of your business plan, the foundation for your export strategy. If your business plan hasn’t been reviewed and updated recently, or if you don’t have one, now is the time to start!
In our “Export Planning 101” blog series, we’re here to guide you through the major points that your export plan should include. This blog will cover the financial section of the export plan.
Financing your export journey
From a financial standpoint, there are a few key areas to consider in order to minimize the risk of running into difficulties down the road. The financial options for exporting businesses are plentiful, so make sure to discuss funding and methods of payment with your financial institution.
Costs
Exporting costs can add up, which is why it’s so important to budget and pinpoint your business’ financing needs. Expect to spend on travel, trade shows, documents and notary costs, as well as future expansion. Depending on where your target market is, you’ll also have to pay for translation services.
Methods of payment
There are several ways to collect payment and understanding each of them will help reduce the risk of non-payment. As with domestic sales, negotiate and decide on your payment terms ahead of time. Here, we will cover payments in advance, letter of credit, bill of exchange, and open account methods of payment.
- Payments in advance
Ideally, exporters receive 100% of payments in advance. This means getting paid before shipping your goods or performing your service. You can also ask for multiple payments of different percentages to build trust with your buyer and balance risk.
- Letter of credit
In this method of payment, the buyer’s bank issues a letter ensuring funds are being held for the purchase. Once certain conditions outlined in the contract are met, the buyer’s bank deposits the payment into your account.
- Documentary collection
Similar to the letter of credit method, documentary collection utilizes your bank to mediate the payment process. In this transaction, your shipping documents are withheld from the buyer until you are paid. Once your bank collects the payment as agreed, they will release the documents to the buyer, allowing them to clear customs and gain access to the goods.
- Open account
An open account works by sending an invoice to the buyer after delivering the goods or performing the service. The buyer is expected to pay within the specified timeframe. This method of payment is usually reserved for higher trust relationships or inter-company transactions.
As you can see, there are varying levels of risk associated with each method of payment. You may decide to change methods or your terms over time, as the size of order or level of trust between you and the buyer changes.
Minimize financial risk
In addition to choosing the right method of payment that reflects the relationship between you and your buyer, there are other steps to take for minimizing financial risk. Consider the following:
- Credit checks
- Accounts Receivable insurance
- Insurance during transportation of goods
- Protection against currency fluctuations
- Collecting a deposit from buyers that covers the cost of goods sold
Funding programs or grants
There are many programs and associations that support exporting and provide financial assistance. The Trade Commissioner Service offers funding for exporting Canadian businesses through the CanExport program. For underrepresented groups in business, there are also funding programs for women-owned and Indigenous-owned businesses.
Besides government grants, banks that support exporting, like BDC or EDC are great options for getting financial support.
How do I get started?
Now that you know the basics of what the finance portion of your export plan should include, it’s time to dig deeper and figure out the specifics for your company. Get a head start on your export plan and go through the Export Navigator Workbook with an export advisor.
In our next blog, we will discuss the rest of the export plan outline – finding buyers or partners, and transportation and logistics. Stay tuned!
