Credit Management July and August 2021

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THE HITCHHIKER’S GUIDE TO INTERNATIONAL TRADE • HITCHHIKERS GUIDE TO FINANCE INVOICE POWER How can invoice finance help companies trading internationally get paid? Part 1. AUTHOR – Lesley Batchelor OBE, FCICM TRADING with overseas buyers tends to carry more risk than trading domestically, although it does offer opportunities for huge growth. One of the riskiest elements of exporting is usually around getting paid and therefore it is important that sellers consider how they can reduce this risk. There are several ways you can de-risk getting paid, and each has its own advantages and disadvantages. These include payment in advance, letters of credit, and trade credit insurance. In this article, we take a look at invoice factoring and confidential invoice discounting. INVOICE FACTORING Invoice factoring involves a third party, a factoring company, buying your invoices at a lower than face value price, and then recovering the full value of the invoice from your customer. Essentially, they are buying the debt from you and it is they who take the risk of not getting paid. PROS AND CONS The biggest advantage to factoring your invoice is that you definitely get paid and in a timely manner. This removes the risk of not getting paid and doesn’t compromise your cash flow. The most obvious disadvantage of factoring is that you lose a proportion of the value of your invoice. This will need to be considered when setting your sale price. Most factoring companies will also expect to take your whole sales ledger, rather than you identify and select the riskiest contracts to insure. This means that you will have to pay fees even for very low risk invoices. This allows the factoring company to spread their own risk. Because the factoring company deals directly with your customer to recover payment, you must trust that they will deal with your customers in the same professional way that you would, otherwise you could potentially risk damaging your trading relationship The biggest advantage to factoring your invoice is that you definitely get paid and in a timely manner. This removes the risk of not getting paid and doesn’t compromise your cash flow. by association. There is even potentially a reputational risk as some buyers may associate factoring with companies who are struggling financially, although nowadays this is part of the set-up discussion with the factoring company. CONFIDENTIAL INVOICE DISCOUNTING Confidential invoice discounting is similar to factoring, with the main difference being that your buyer remains unaware that a third party is involved as you will always deal with them to secure payment. Confidential invoice discounting is facilitated by an invoice finance provider. You invoice your customer and send a copy of the invoice to the invoice finance provider. They then pay an agreed percentage of the invoice, usually within a couple of days. When the customer pays their invoice, you receive this minus a fee. PROS AND CONS As with factoring, the main benefit is that you receive a payment very quickly. You also retain the relationship with the customer, so you have control of the whole process. The customer remains unaware that a third party is involved so there is no negative association. Confidential invoice discounting is usually less expensive than factoring. As with factoring, you lose a percentage of each invoice and most invoice finance providers will want your full book. With this method there is still an element of risk if the customer does not pay as you wouldn’t receive the final balance. If you find that you wish to finish either type of agreements with your providers, you are normally free to do so – check your agreement. However, any monies that have been paid to you for invoices that have not yet been paid by the customer would have to be given back to the provider and this needs to be carefully planned to avoid impacting your cash flow. Lesley Batchelor OBE, FCICM COO & Commercial Director at Open Borders Direct. As with factoring, the main benefit is that you receive a payment very quickly. You also retain the relationship with the customer, so you have control of the whole process. Advancing the credit profession / www.cicm.com / July & August 2021 / PAGE 32
EXPORT Research Engine Should tax credits extend to exporting research. AUTHOR – Lesley Batchelor OBE, FCICM OECD – Research and Development tax credits – this isn’t the first time I’ve suggested it, but why don’t they extend this scheme to include research into new markets? And any modifications that might be needed for new markets in terms of packaging or marking specific for new markets? When we trade internationally, we can’t just offer exactly the same product to every country. International marketing simply doesn’t work that way. Of course, it is cheaper if you can get away with it but even Coca- Cola has had to modify flavours and colours of some of their drinks to suit the market, as tastes vary between cultures. STANDARD MANTRA Although the standard mantra for new markets has been traditionally gung-ho, just having a stab at exporting isn’t going to work unless it’s backed by thorough research into how the product or service will be sold and to whom. The one thing that has come out loud and clear from the perils of leaving the EU is that as a nation we have slipped behind in our understanding of how trade actually works. Understanding that the product you sell attracts a tariff and that this will impact the final price in the market is not just your customer’s problem but yours too. If you can work with your customer wherever they are in the world to mitigate and efficiently execute any resultant paperwork this, in itself, can reduce costs. When we look at a new market it shouldn’t be simply be a question of how much something can be sold for, but a serious analysis of the consumers tastes and preferences as they vary between markets. Establishing where to sell, who your target audience will be and how much to charge is not a simple quation as is contains many qualitative as well as quantitative elements that need rational consideration. A pricing life cycle needs to include all costs, from the research into the product through to the cost of shipping and placing on the shelf. This in itself is a costly and time-consuming exercise, not to be rushed and skimped on, and being able to claim back the expenditure or offset these costs, at least until the first export sale is made, would be a great benefit to those serious about exporting. This issue needs to be discussed and added to the Export Strategy due to be published later this year. SIITACE is a new forum for Independent International Trade and Customs Experts and will want to hear from you about this in readiness for a paper to be published in the summer. Do send any ideas or thoughts to Lesley.batchelor@exportbootcamps.com Lesley Batchelor OBE, FCICM COO & Commercial Director at Open Borders Direct. Understanding that the product you sell attracts a tariff and that this will impact the final price in the market is not just your customer’s problem but yours too. Advancing the credit profession / www.cicm.com / July & August 2021 / PAGE 33
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Page 5 and 6: CMNEWS A round-up of news stories f
Page 7 and 8: NEWS ROUNDUP CICM partners with CES
Page 9 and 10: INSOLVENCY Changing times The IPA r
Page 11 and 12: OPINION AUTHOR - Ben Marsh because
Page 13 and 14: INTERVIEW AUTHOR - Sean Feast FCICM
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Page 19 and 20: ENJOY THE JOURNEY COME ABOARD SEE H
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Page 25 and 26: COUNTRY FOCUS AUTHOR - Adam Bernste
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Page 39 and 40: ’ CICM ADVISORY COUNCIL I have me
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