Cash flow planning for first-time exporters

Businesses considering exporting goods for the first time should take care when planning ahead, as when it comes to managing cash, things can become a lot more complicated while trading internationally.


While first-time exporters will be drawn in by the revenue opportunities that new geographies may offer, the decision to expand overseas should not be taken light heartedly.

In order to be successful, businesses must plan their resources sufficiently and recognise that the investment required to activate an export initiative could significantly impact cash flow.

Managing Cash Flow when trading internationally

Factors to consider that may put a strain on the working capital cycle of businesses exporting for the first time are such as:

  • Customs costs and delays.
  • Longer delivery times.
  • Increased payment terms.
  • Managing new customer relationships.
  • Potential issues around foreign currency exchange.
  • Increased use of credit, likely to increase the risk profile of the organisation.

Preparing a detailed set of financial projections can help first-time exporters to assess the financial viability of their overseas expansion giving them a full understanding of how it could impact on their cash position.

What is three-way forecasting?

business growth on laptop graphic

Three-way forecasting involves integrating information from data sources including profit and loss accounts, balance sheets and cash flow reports in order to predict the financial position of the business based on a number of possible scenarios. For example, the need to insure against increased geopolitical risks, the payment of trade tariffs or the imposition of withholding taxes in certain markets could come as an unexpected additional costs if not identified and built into financial forecasts at an early stage.

When it comes to cash flow modelling how far to forecast can be unclear, although it is likely to depend on the organisation’s strategic objectives. At the very least, businesses should ensure that forecasts cover the entire trade cycle, from receiving an order to its fulfilment and taking payment. This will reassure the management team that the resources exist to cover any operational overheads without experiencing cash-flow difficulties.

Looking to grow?

For companies with plans to grow significantly in the near future, it may be necessary to take further precautions to protect working capital. Once cash-flow modelling has been undertaken, appropriate steps should be taken to improve the business’ financial position and ensure a healthy profit margin. For example, this may mean renegotiating contract terms with customers or lengthening payment terms with key suppliers to avoid running short of cash as they increase their export drive.

Potential risk factors

It is important to proactively manage the payment process with your overseas customers before it starts to undermine the company’s financial position. Tactics may include, getting paid in advance and using letters of credit to mitigate the risk and ensure punctual payment. If credit is to be offered (before entering into any agreement), it is important to carry out extensive credit checks, consider the use of export credit insurance and establish efficient credit control procedures.

Another area of risk for the first-time exporter is exchange control, which could make it difficult to transfer local currency out of a particular market, for example, China, India and parts of Africa. During the planning process you should fully understand the regulations and restrictions (including documentation and local taxes), whilst agreeing with customers how these requirements will be met, and incorporating time delays into the cash flow forecast. Needless to say, where possible it makes sense to get payment upfront for all, or a significant percentage of the contract value.

Increase the chance of global success

UK Export Finance, a Government body which provides support to businesses trading internationally, can also help first-time exporters when trying to secure overseas contracts. It works alongside banks to combat late payments and helps businesses to obtain attractive financing terms.

If you have any queries regarding the above, please do get in touch with Nick Farmer, or contact us via the form below:

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