Banking | Barclays
corruption remain real challenges to businesses looking to operate there and for some markets political and sovereign risk should also be considered. UKTI and the Foreign & Commonwealth Office (FCO) provide authoritative, accessible online information about the key political, economic and business security issues which an exporter will face. For Peter Budd, “the real value of the HVO programme is in the focused business intelligence UKTI can provide, which helps businesses to really understand the markets that they are going into.”
Understanding the financial implications
From the cost of fulfilling the order to the risks of delayed or non-payment, an HVO project can place significant pressures on your business’ working capital. “It is important to consider the importance of cashflow and risk management from the outset - many smaller businesses focus on the potential revenue benefit of winning an export contract without giving sufficient consideration to how they are going to fund the project”, says Gary Griffiths. “At Barclays we support our clients in this process by looking at their end-to-end trade and working capital cycle in depth to provide financing options that are right for their business.” Businesses may need bank support early on in the process, including when bidding for the contract. For example, a buyer will often require a supplier to provide Bank Guarantees to support the tendering stage. A Bank Guarantee is one of the ways that your banking partner can help to demonstrate your financial credibility, in turn enhancing your trading status to improve your chances of winning the bid. The bidding process can also open businesses up to currency risks, particularly in emerging markets. Some businesses try to reduce their currency risk exposure by bidding in sterling; however in a world of global competition this can make your bid uncompetitive. By engaging your bank early they can help you determine the best approach to tackling the specific currency risks in any given contract bid, whether that means formally hedging the risk or building currency options into the tender itself.
FUNDING AN EXPORT HVO
To secure the funding that you need it is essential that you have an understanding of what your bank is looking for when you engage them.
Many of the risks of an HVO can be mitigated early. The risk of non- payment, delayed payment and even currency risk can be reduced through effective negotiation with the buyer and robust agreements being put in place from the outset. Trade Finance solutions can also help to minimise or eliminate the risk of non-payment, which is an important concern for businesses. Your bank can help you to understand whether solutions such as Letters of Credit, Confirmation,
APPLICATION CHECKLIST
A COMPREHENSIVE PLAN Present a thorough plan for the project, showing how this opportunity ties into your overall strategy. By showing how you have planned your approach and that you have carefully selected this opportunity, you will give your bank confidence that you are well-placed for success.
A FOCUSSED MANAGEMENT TEAM The quality of the management team is a key asset to any business and demonstrating their abilities makes a strong addition to an application.
A REALISTIC BUSINESS FORECAST By providing prudent and realistic projections, including a cash flow forecast, for the HVO project as well as a ‘what if’ analysis, you will show that your project is viable. In particular, be sure to demonstrate that you have planned a robust risk mitigation strategy.
A DETAILED UNDERSTANDING OF YOUR TRADE & WORKING CAPITAL CYCLE Showing that you have a deep understanding of your business’ trade and working capital cycle and that you have thought through how it will be impacted by this project will inspire confidence in your banker. Including details of the contract, Incoterms, the type of the goods or services, the shipping, commercial and financial documents as well as details of the timescale and location of the different stages of the cycle can help you demonstrate this.
52 GLOBAL OPPORTUNITY 2014 | ISSUE 01
Bills of Exchange or Avalisation can be introduced into export negotiations and ultimately into the commercial contract terms to support you.
As well as the need to
demonstrate financial credibility and mitigate risk, it is also critical for businesses to ensure that they understand their working capital requirements for the project. Many export opportunities require long contracts or impose long credit periods, which can cause cashflow difficulties for businesses. A common challenge is that many businesses try to fund their trade cycle with a traditional overdraft and that may not be the best solution. “Trade Finance facilities can replace traditional credit lines, often providing a better value solution with more flexibility to meet liquidity needs,” says Gary Griffiths.
Taking the next step For SME suppliers looking to work
with businesses like Arup, Peter Budd recommends building your contacts and knowledge of the industry. “Get into the information flows by linking in with the trade organisations relevant to your industry and take advantage of the information that UKTI’s dedicated research team offer.” He also recommends patience: “you may not win the first contract that you tender for, however by building relationships in the right markets you will open up vast opportunities for your business. The HVO programme has the political support and investment to deliver real opportunities for UK businesses, so we would urge SMEs to take advantage of this.” Gary Griffiths agrees that the HVO programme represents an excellent opportunity for businesses of all sizes. He highlights the importance of building relationships, “finding the right financial partner with a deep understanding of how to support your business can really help you to succeed. With our extensive global footprint and commitment to UK businesses, Barclays is well-placed to support.”
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FURTHER INFORMATION
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