EXPORT RECOVERY SERIES | GETTING PAID AND MANAGING RISK
Getting paid in export is fraught with difficulty at the best of times – these are not the best of times – and the risks need to be understood to be managed. Watch the replay of our webinar of Getting Paid and Managing Risk and our outtakes from the discussion are below:
A general update on New Zealand exports – Nadine Hill NZTE – Mixed bag for New Zealand exporters – F&B, Health, wood sectors proving resilient, and total exports in April/May are tracking at roughly the same level as they were last year on a macro level. However, with Government’s pumping money into their economies around the world it’s hard to gauge the level of real demand out there, and how it is going hold up over the next quarter or two.
Why is this a greater problem now? The rule of thumb is when exporting, the terms of credit you provide your customers will be longer than your domestic terms of trade – so the length of time to get paid will affect your cashflow. With C19, in general payments are taking even longer to get made, making cashflow even harder to manage when most companies can afford it the least.
Understanding trade credit insurance – Mike Hayes – there are extra risks in trading offshore, and credit insurance is all about making sure you get paid for your asset, being the invoice cost of your goods, the ‘dollars’. The cost of that insurance is based on understanding the payment risk of your customer.
What’s the function of Letters of Credit – Maree Erskine – it’s a guarantee from your buyer’s bank that you will get paid. Typically you would use an LOC or credit insurance, you don’t need both.
Can you just fly by the seat of your pants and have neither? The upshot it is too risky when you have $100,000 of product on the seas that hasn’t yet been paid for
\This is an ecosystem response, not a single solution response. NZTE, Banks, Export credit NZ, private insurers – where do you go first as a customer to navigate this area? It’s dependent on your context and relationships, so start with the person/partner that knows your business the best to help you through.
Managing the payment risk in exporting is challenging right now – there is more demand for export credit cover – less supply from those that are providing the cover. There are ‘no more Rolls Royce credit limits…’ Bridging the gap is where Export Credit NZ can really help.
Three questions that need to be asked by exporters to their customers, that their insurers will need to know – Mike Hayes – One, do they still need the product? Two, can they clear the product through the ports/airport on arrival? Three, can they pay for the goods?
In understanding credit risk – financials don’t mean anything anymore, so real information is key. Continually dialogue with your insurance provider – the industry has changed, instead of an ambulance at the bottom of the cliff, it is now part of the ‘sell’ to your customers.
Sometimes the solution is the simplest. Some customers will be open to paying in full, upfront. Ask for what you want – don’t ask, don’t get.
World First – provides domiciled bank accounts (ie a US bank account) in the country where the transaction is completed, relevant to minimising cost in online trading, and gaining transparency in the murky world of FX.
To undertake directly, it’s extremely difficult to open local bank account in US and Europe
Amazon will take a 3% FX charge and take 7 days to pay – with World First there will be an immediate transfer with Amazon, as recognised as a domestic account. Then you choose to move these funds back home at lower FX rates, when the time is right to do so. This is the new normal, ‘the new world of doing business’, and it will keep changing from here – grow with it.