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Positioning Yourself for Steady Cash Flow

As an import business owner, it can be difficult to consistently maintain cash flow when engaging in international trade. Especially with added risks from international payment delays, and the need to pay manufacturers for products weeks, or even months before the goods can be sold.

"Cash flow is one of the most important parts of this trade," says Vipon Kumar, director of sourcing at Acme-Hardesty / Jacob Stern & Sons, Inc., a Philadelphia-based global sourcing, and import and export business. "There is no set method other than sound financial management of the capital committed."

For business owners that means having enough cash to manage the financial gaps between the purchase and sale of goods, and looking for ways to shorten those gaps. Here are some strategies to consider for balancing international shipping costs and maintaining cash flow.

“Cash flow is one of the most important parts of this trade.”

— Vipon Kumar, director of sourcing at Acme-Hardesty / Jacob Stern & Sons, Inc.

Discuss Payment Terms

Negotiating payment terms is an ideal payment method for small importers worried about cash flow, because it allows them to delay paying the manufacturer for up to 120 days from when goods are shipped. However, individuals have to get the manufacturer to agree to these terms, says Marc Adelson, president and CEO of Capital Business Credit, a non-bank lender headquartered in New York.

If an import business has a long-standing relationship with a supplier, or is willing to offer them other benefits, such as better terms and access to getting paid more quickly, they may be open to this payment method.

Negotiate an Open Account

With an open account, the importer agrees to pay the supplier on a set date after the goods arrive. This gives the importer time to sell the goods and reduces the cash flow crunch. Importers can get a letter of credit to secure the deal, which means their bank guarantees that it will make the international payment to the supplier on the defined date, assuming all the terms of the agreement are met. Again, such terms put added risk and delays on the supplier.

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Once an importer and exporter have established a relationship built on trust, they could instead begin to use a trusted online foreign exchange service to help reduce trips to the bank and paperwork typically associated with letters of credit.

Secure Loan or Purchase Order Financing

If the importer has a confirmed purchase order from a retailer, they may be able to secure funding to cover the amount of the purchase price, and bridge that cash flow gap, says Ian Varley, managing director of Bibby Financial Services, an Atlanta-based provider of funding services for domestic and export account receivables.

"With purchase order financing, the financial institution provides the cash up front to the supplier so that the importer's cash flow is not impacted for a long time," Varley says. The importer then pays the financial institution, or once they receive payment from the retail customer.

If a business decides to use a trusted online foreign exchange service, it may be able to secure a discounted price from its supplier in exchange for paying in the local currency.



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