Trading Across Borders: The Working Capital Challenges of Global Trade
Australian businesses who trade internationally often face additional layers of working capital pressures. Trading domestically comes with its own delays with payment terms, but for businesses who import and export there’s likely additional challenges such as currency movements, trade conditions and international logistics which can create further working capital holdups.
For exporters
For exporters, pressures can arise once goods have exited Australia. The payments may be subject to extended terms such as additional documentation requirements and exposures to other debtors across jurisdictions. The accessibility of creditworthiness and recovering unpaid amounts can also become more difficult.
For importers
For importers pressures can arise prior to final sale. Offshore suppliers may require payment in foreign currency, and that is well before the business receives any payment from its Australian customers.
Foreign exchange exposure
When invoices or supplier obligations are issued in foreign currency the movements of the rate between transaction date and the settlement date changes relative to the Australian dollar value of a payment or receivable. Even when the transaction is net profitable it can still create pressures on working capital when that gap becomes longer or is less predictable.
Extended logistics timelines
In many cases there are shipping delays, documentation requirements with longer payment terms can extend the period between paying supplies and receiving cash from customers.
Change in trade conditions
Cross boarder trade also comes with issues around tariffs, duties and charges across different trade policies which can affects costs, margins and terms on how business trade across international customers and suppliers. Conditions like these can change fast and traditional working capital facilities can be reviewed or adjusted accordingly.
Final thoughts
If your business manages offshore supplier payments with extended shipping windows or exposure to debtor risk in international markets, it’s worth asking whether the working capital structure is adapted and designed for international trade.