Export Receivables – A sustainable source of Working Capital

Africa’s share of global trade is a paltry 3%!

Whereas there are many reasons – structural or otherwise – for this unsavoury state of affairs, inadequate working capital to finance export businesses ranks among the most critical. This is exacerbated by the fact that over 80% of cross-border business in Africa is undertaken by Micro, Small, and Medium Enterprises (MSMEs), 60% of which are women-owned.

Among the numerous hurdles that MSMEs in cross-border encounter include, but are not limited to:-

  1. A growing trend by overseas customers to insist on open account trading as opposed to bank-facilitated documentary-based trade.
  2. Limited access to credit insurance and risk coverage for overseas debtors thus exposing MSMEs to the risk of bankruptcy in event of default
  3. Poor access to working capital in Africa (or where available, the cost is quite high).
  4. Increasingly long credit terms imposed by overseas customers who are keen to leverage supplier finance for working capital
  5. Limited knowledge about overseas markets, legal systems, collection procedures, etc

The hurdles for African exporters were compounded by the Covid 19 Pandemic, starting from the extended lockdowns, negative health impact on employees and suppliers, challenges with availability and cost of Foreign Currency and – most importantly – the inability of local Banks to finance exports as a result of reduction of correspondence limits by overseas Banks.

These challenges provide a compelling case why African exporters should adopt cross-border factoring which addresses the above challenges and provides various benefits to both African exporters and their overseas customers:-

Benefits to the Exporter

  • Working Capital improvement.
  • Easy access to affordable finance, pegged to the creditworthiness of the importer.
  • Reduction in time-consuming credit administration and costs.
  • Reduction in risk while offering overseas customers competitive open account terms.
  • Growth in turnover by offering flexible payment terms.
  • Strengthening of revenues by improving Days Sales Outstanding (DSO).
  • 100% credit protection against bad debts and customer insolvency.
  • Better borrowing potential and an opportunity to make use of supplier discounts.

Benefits to the Importer

  • Improvement of working capital due to the delayed settlement of payables (Days Payables Outstanding extension).
  • Payment to local accounts, no additional bank charges.
  • The opportunity to buy goods using convenient open account terms.
  • Expanded purchase power without using existing credit lines.
  • Removing the need to open letters of credit, no administrative burden, and costs, and the ability to place orders swiftly.
  • Communication with a local factoring company regarding disputes or delays of payments.

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