Growing Your Business with Receivables Financing!
Every business at some point in its growth cycle will encounter periods of tight cash flows and this will affect its operations and consequently its ability to generate profit. This is often a part of the daily reality for small and medium-sized enterprises (SMEs) everywhere that face the additional challenge of sourcing adequate and appropriate types of funding for their developmental needs. While there are a myriad of financing options, a number of factors can impede access to funding, for example, the inability to provide collateral and/ or to meet the funding criteria. Furthermore, these types of businesses may not qualify for some of the more common forms of commercial financing such as loans or lines of credit, which may be expensive. The lack of access to ample working capital can severely restrict the growth of any organization and even more so that of a SME that needs to purchase inventory and raw materials to increase production and pay daily operating expenses such as utilities and salaries.
Receivables financing can be used to unlock working capital, enhance cash flow and reduce the risk of bad debts, all of which are factors critical to success. But what is Receivables financing? In simple terms, it can be classified as a type of asset financing where a company uses its outstanding invoices or receivables as collateral to secure a cash advance.
Consider the following example: Spices Inc. Ltd., a manufacturing company, has received a large contract to supply its line of spices and condiments to an international hotel chain. However, if it were to fill this contract, the company would need money to purchase additional raw materials and hire more staff in order to continue production. While the company does not have sufficient cash on hand, it does have invoices that become due in 45 days. Spices Inc. Ltd. approaches EXIM Bank, which provides 80% of the value of the receivables having assessed the creditworthiness of the buyer. The company now has the surplus working capital that it needs to boost its production and to continue operations. Forty-five (45) days later the hotel pays the invoice. Spices Inc. Ltd then pays the 80% over to EXIM Bank plus interest incurred for the 45 days. As a result, the company is able to strategically expand its operations in line with its productive capacity due to the revolving nature of this facility, as it is based on the value of orders fulfilled. Spices Inc. Ltd now is has the capacity to supply other hotels within the Group across the Caribbean.
There are many benefits to be derived from EXIM Receivables Financing such as:
(1) Accelerated Availability of Working Capital. Instead of having to wait several months for payments from its buyer, a business can get cash in hand to purchase raw materials and inventory, upgrade its facilities or pay staff.
(2) An Improved Short-term cash flow position as resources become available for other revenue generating activities such as sales and/ or marketing efforts, which are designed to attract new customers and bring in new business.
(3) Improved Capacity to take on new business and in turn generate more profit.
(4) Increased Competitiveness as it allows a business to extend credit terms to buyers.
(5) Reduced Reliance on Expensive Debt Financing.
(6) Reduced Reliance on the use of personal or business assets as collateral for financing.
Receivables financing is gaining in popularity as a valuable commercial financing tool especially for small and medium-sized businesses engaged in manufacturing and/ or exporting. If you need to accelerate the availability of working capital for your business, then EXIM Bank’s Receivable Financing may just be the option for you.
For more information on how EXIM’s Receivables Financing can be used to expand your business and build capacity, please call us at (876) 630-1400 to speak with an experienced Credit Analyst or visit our website at http://www.eximbankja.com/loans/receivables-financing-loan-facility.