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Cash Flow Management for Global Trade

All successful manufacturers, sales businesses and exporters know the extreme importance of having immediate access to a steady stream of cash. This working capital, when used wisely, results in smooth, continuous sales transactions and profits. Because international business transactions require longer periods of time to complete, global companies must be even more certain of their ongoing levels of available working capital. Professional cash flow management techniques are essential for all aspects of global trade activity.

What are some of the major risks relative to cash flow levels in global trade?

1. Payment Risk. – Risk degrees involving payment by a product buyer from another country can be difficult to assess accurately since obtaining international credit checks can take a long time. However, in order to carry on safe global trade, exporters and international sales companies need to determine whether potential customers have good track records in terms of making timely payments and fulfilling payment obligations as agreed.

2. Business Contract Penalty Risks. – Liquidated damages, or penalties from late order deliveries, are ordinary occurrences in global trading transactions. Unfortunately, they can be costly. For capital goods producers and sellers, for example, a delivery delay of one week can result in a 1% penalty based on product value. Delays in successful delivery of certain documents related to shipments can also bring penalties to both manufacturers and sellers in global trade.

3. Production Performance Risk. – Unless you have extensive knowledge and understanding of your international materials suppliers, your manufacturing and exporting business may be at constant financial risk. Low quality or defective materials may cause delays in your production and delivery schedules and require reordering from other sources. This problem must be resolved at your time and expense. Transporting materials and goods in and out of some countries can be more costly than anticipated, also increasing your company's cost levels.

4. Foreign Exchange Risk. – Foreign currency fluctuations can cause your company to lose money during global business transactions. This problem has a higher level of occurrence if your business cash flow consists of several different currencies.

5. Trade Regulations Compliance Risk. – When first getting acquainted with your global trade target markets, always become familiar with all regulatory requirements in each country or region. This will prevent your company from encountering serious problems such as late deliveries, fines or in some instances, criminal charges.

6. Political Risk. – There can be unforeseen political risks when dealing with foreign product markets, especially when trading in emerging economies. Obstacles like customer non-payment, failure of currency converting efforts or even political violence can prevent or inhibit successful fulfillment of global trade contract provisions.

How can global sales companies manage and protect vital working capital supplies?

As an international manufacturer and/or seller you can minimize risks to your company's supplies of working capital by employing the services of an expert financial consultant and accounts receivable funding company or inventory lender to assist you in implementing some of the following measures:

• Centralize and consolidate materials procurement necessary for manufacturing your company's products for sale in international markets. This will reduce your overall trade transaction expenditures. Also work in closer alliance with your global customers in order to reduce both costs and risks for you and your clients.
• Improve direct communications with your materials suppliers and with your customers. With strengthened understanding of their business operations and national customs, you can help eliminate problems with fluctuating inventory levels and late or inaccurate product deliveries. This can save you both headaches and money.
• Work closely with your business finance department to ensure understanding and agreement concerning your company's financial objectives relative to expenditure levels, cash flow supplies and overall management of working capital. It is essential that everyone works in unison toward well-coordinated management of collections, inventory levels and good credit availability with suppliers. Your receivables funding agent or inventory lender can also provide you with the necessary cash flow levels to assure good ongoing business operations.
• Arrange longer term payments with your materials suppliers. This will help you balance out any late or irregular payments and accounts collections activity concerning your global customers.
• Make use of early payment date discounts in order to cut the overall costs of producing and selling your products. In addition, you may need to enforce stricter collections guidelines and customer credit approval criteria.

It is important to make careful and wise use of your professional financial consulting firm's experts and the excellent guidance and support they provide in such areas as accounts receivable financing and inventory lending. Additionally, you can greatly strengthen and grow your company's credibility, business and profits by utilizing these specialized areas of financing.