Simon Carter (Director of Touch Financial) summarises the current outlook for UK exports and highlights how alternative forms of finance can help British businesses succeed internationally.
Exports are the biggest topic in UK business right now. The government’s plans to double UK exports to £1 trillion by 2020 and to get 100,000 more UK companies to export by 2020 have gained traction over the past year, bolstered in part by the £4.3 billion in export credit guarantees provided by the UK government in 2012-2013. UK Export Finance (UKEF)’s £1.5 billion Direct Lending Scheme, which aims to fund buyers of UK exports, is also in the export funding mix.
There is strong government support for the UK export sector – the UKTI recently delivered an Export Action Plan for the UK food and drink sector, which details strategies that aim to provide a £500 million boost to the economy. This particular sector provides great promise for export, as food and drink makes up the largest manufacturing sector in the UK, with a turnover of £90 billion. It also boasts plenty of untapped potential, with 90% of related SMEs currently either not exporting or only exporting to European countries located close by.
The Allure of New Markets
The EU is currently the UK’s largest export market, but emerging markets are becoming more than a buzzword, and could even overtake the EU as our main export destination. (Growing markets that appear promising include Brazil, China, India Russia and South Africa.) Whatever the destination, it remains obvious that new markets mean much potential for increasing sales and revenue, especially with British products that are already saturating local markets and populations.
Obstructions that have traditionally restricted entry to the export market are beginning to be lifted: trade barriers are being broken down, businesses can save on costs for establishing premises in foreign markets with local partnership programmes, and export finance is growing in popularity as an export cash flow solution, used to plug any funding gaps.
Trade and Export Finance
Trade and export finance are forms of funding designed to fund UK businesses whether they are exporting goods and products overseas or importing goods (sometimes to be re-exported), and typically guarantee payment to the supplier. This guarantee, called a Letter of Credit, is provided by the business’s bank. This covers the business financially on the supply end, but the business can also opt for invoice finance to bridge the cash flow gap between incoming and outgoing cash (an invoice finance lender advances cash from unpaid invoices to the business). A combination of export finance and invoice finance will allow the business to cover the costs of exporting and can even fund further business growth, allowing it to branch out and extend its global reach.
From a financial front, the Asset Based Finance Association (ABFA)’s Q2 2013 report showed a healthy 28% increase in sales funded by export factoring and 13% growth in sales funded by export invoice discounting. I would not be surprised to see the market keep up this level of growth in Q3 – or maybe even exceed it – as more and more business owners recognise what a vital part export finance can play in funding exports.
Export Tip: Businesses that require a guarantee of payment from their banks to suppliers need to apply for a letter of credit.
Looking for export funding? Touch Financial can connect you with the best-fit provider for your business for FREE. Call us on 0845388972, email us at firstname.lastname@example.org or fill in a Quote form, and one of our consultants will be in touch as soon as possible to discuss your export finance needs.