Learn the risks associated with international trade and how international invoice factoring can help you mitigate them.
As technology has continued to evolve and become more accessible, the business world has grown increasingly interconnected. As a result, more and more businesses – across a wide range of industries – are expanding their footprints into brand new markets.
Engaging in cross-border trade can be a great opportunity for companies looking to grow their reach and diversify their customer base. However, organizations also have to be mindful of the complexities and risks that come along with it. Exporters that actively work to mitigate these risks are not only more likely to find success in these new markets, but also to protect themselves from financial hardship.
One of the most effective ways for exporters to reduce risk is by using international invoice factoring. When you factor with a reputable company that has experience navigating the complex world of trade finance, it gives your company a financial safety net and a sense of security – allowing you to focus on your business needs and growth. Read on to learn about the possible risks and how to mitigate them!
What Are the Risks of Cross-Border Trade?
In this instance, “risk” refers to the potential for financial loss when exporting goods or services to clients in another country. While exporters can control who they work with, they can’t control the conditions and factors that cause additional risk in the countries their clients operate within. Some examples of these types of risks include:
- Exchange Rate Fluctuations: Changes in exchange rates can result in your company receiving less for the goods you export, affecting your bottom line by lowering your revenue and profitability. Factors that can cause rates to fluctuate may include the economic conditions of that country, geopolitical events in or around the area, market sentiment and more.
- Economic and Political Events: Certain countries are more vulnerable to trade disruptions due to political instability, which can occur due to changes in government or civil unrest. These countries can also be impacted by changes in regulation, such as new tariffs or trade restrictions, making it harder to reach clients and increasing the cost of doing business.
- Natural Disasters: Extreme weather events like hurricanes, earthquakes, droughts and more can have devastating effects on certain goods and the ability to transport those goods. Any damage to infrastructure and transportation networks can cause significant supply chain disruptions, which can lead to delays in delivery or increased transportation costs.
Of course, there is also the risk that comes with partnering with certain international buyers. One of the biggest challenges that exporters frequently encounter is having to deal with overdue invoices, as some overseas clients may wait weeks or even months before paying the balance on an open invoice.
This could be due to any of the reasons listed above, or it could be because of the different payment practices and legal frameworks that exist in other countries. Regardless of the reason, delayed payments and non-payments on these invoices can cause significant financial strain for exporters due to a lack of working capital.
These risk factors, as well as your ability to mitigate them, can have a substantial impact on your company’s profitability and overall financial stability. Additionally, the uncertainty that comes with these situations can make it difficult for exporters to plan for the future and make strategic decisions, adding even more instability to your company’s financial situation.
How International Invoice Factoring Mitigates Risk
There are several steps you can take to help you mitigate risk factors, such as developing contingency plans for certain events or monitoring global economic and political trends. International invoice factoring, however, is one of the best ways to ensure consistent access to working capital so your business can perform its daily operations and plan for future growth.
With invoice factoring, the idea is to sell your invoice to the factoring company of your choice in exchange for an immediate cash advance – usually within 24 hours or less. The factoring company will finance a certain percentage of the invoice and hold the remaining percentage until the terms of the invoice are met.
With this approach, you still receive the full percentage of funds from your open invoices. However, instead of waiting 30, 60 or even 90 days for your client to pay, you can receive around 80 percent of the funds up front and get the rest when the customer pays, minus a small fee.
If any of your clients struggle to pay on time, or if outside events cause any delays in transit, your company can still have immediate access to the capital needed to pay expenses, fulfill payroll obligations, fund future business growth and more. And because factoring is not the same as a loan from a bank, your company can gain immediate cash flow without having to assume any new debt.
Additionally, working with a reputable factoring company gives you access to a resource with established connections in the countries you operate within, plus the knowledge and experience to navigate the complexities of international trade law. This means that they can help you with the collections process to ensure there are no issues with payment, evaluating the creditworthiness of any new clients you plan to work with and more.
Factoring with RTS International
As a trusted international invoice factoring company with over 25 years of experience, RTS International has the knowledge and experience to help exporters like you mitigate risk and reduce your reliance on customer payment timelines.
Our organization serves clients in more than 40 countries across a wide range of different industries, including textiles, manufacturing, agriculture, transportation and more. We also offer a dedicated team of representatives fluent in more than 25 languages and committed to helping your business thrive in new or existing markets.