What are the Advantages of Pre-Shipment Finance?
Often companies experience a situation where they cannot afford to purchase materials needed for a large order, or perhaps they cannot meet the manufacturing or shipping costs. This can be a huge setback to any company, but there is a way to make ends meet without giving up the clientele. Pre shipment finance provides a borrower with a loan from a lending institution in order to pay for raw material, manufacturing, and shipping costs prior to exporting an order.
Other reasons an exporter may take advantage of a pre-export finance solution include insurance, transport charges, inspections, duties, taxes, and fees.
Advantages of Pre-Export Financing
Participating in the practice of pre-shipment finance has a lot of advantages for everyone involved. Many businesses that prefer this type of business transaction may do so because their budget for procuring raw materials, packaging goods, and manufacturing goods may be limited. Staff size and working capital increases can also become a hindrance, but by securing money beforehand, businesses are able to purchase raw materials that they need for manufacturing, offset the cost of manufacturing the product, and even afford shipping costs that may prove difficult for smaller businesses. Often, companies include the cost of raw materials, manufacturing, and shipping into their product prices as a way to conveniently take care of all the expenses in one quick transaction.
Securing a loan in advance also allows companies to use the money when they most need it. This could be beneficial when a large order arises through a different client that could be difficult to meet, but with funds available through other pre-export finance transactions, larger orders are no longer a problem. Exporting is commonplace for the majority of businesses, especially those who take advantage of Internet marketing. However, international shipping can be quite a burden. While the money on traditional transactions will arrive soon, by using a finance solution ahead of shipping, companies can easily ship anywhere their customers need products.
Businesses of any size cannot afford to turn away customers for a few reasons. Most importantly, but turning away a customer, a company must consider the fact that the customer may never return. Anyone who has been willing and ready to hand over money for a product or service only to be turned away can attest to feeling frustrated and put off. The majority of companies rely on re-orders which are orders placed from customers who have done business with the company on a previous occasion. And the most obvious reason that a company would not want to turn away business is that by doing so, a company is limiting its own income and profit. It is not a good practice to take on more orders than a manufacturer can fill, but turning away customers is equally as bad.
Avoid Going Into Debt
Receiving funds ahead of manufacturing and shipment can give a business the opportunity to expand its staff size. Unfortunately for start-up companies and small businesses, employees don’t work for free, but significant funds may not be available to pay for an adequate staff size. With funding available when companies need it, additional staff, whether temporary or full-time, can be added whenever the needs are present, and companies don’t have to worry about how to pay their employees.
Falling behind in any payments can be extremely detrimental to any company. Banks, investors, and lending institutions are hesitant to enter into partnerships or loans with companies that could be considered a financial risk. But by using a pre-shipment finance business solution, companies are able to keep their credit and borrowing record in good standing while continuing to grow their business.
Filed under: Loan