Don't let credit cause you to miss the export boat
American businesses are increasingly turning to exporting as a source of growth, and the processed food industry is no exception. This outward momentum is evident as U.S. food exports surpassed $139 billion in 2017. Food manufacturers are looking beyond the traditional markets such as Canada, Mexico and Europe, and diving deeper into Asia.
The exporters are not just behemoths such as PepsiCo, Tyson Foods or Kellogg’s. More than 66 percent of food processors are small businesses. Along with medium-size food manufacturers, these companies are making great strides into foreign markets. The U.S. Department of Commerce reports small and medium-size businesses with fewer than 500 employees represent almost 98 percent of U.S. exporters.
Despite the tremendous opportunities, some small to mid-size processed food manufacturers still think venturing overseas is too complicated or too risky. There are hurdles associated with different governments, languages and legalities, in addition to unexpected risks such as war, political upheaval, currency conversion and logistics. And of course, the biggest deterrent to exploring export opportunities is fear of nonpayment — the credit risk.
Getting paid is the primary concern of U.S. companies selling goods and services beyond our borders. If the foreign buyers don’t pay, there is very little recourse for the seller, and the financial hit can sometimes be significant. Consequently, many U.S. businesses are wary of wading into international waters, let alone offering credit terms to their buyers.
The good news is many American companies are exporting with fewer hurdles and more confidence by partnering with the Export-Import Bank of the U.S. (EXIM). This federal government agency can provide the financial support necessary to enable U.S. businesses of all sizes to win more international sales, even in emerging and frontier markets. EXIM also levels the playing field so U.S. companies can compete with foreign competitors — many of whom have similar backing by their home governments.
Selling on open account
EXIM’s export credit insurance is a popular product among U.S. food exporters. The insurance policy protects foreign accounts receivable generated by the sale of goods and services from U.S.-based companies to international customers. The policy covers up to 95 percent of the sales invoice against nonpayment because of commercial (e.g., bankruptcy, protracted default) and political (e.g., war, insurgency) risks.
Export credit insurance also improves food companies’ competitiveness in the world market. While many American exporters resort to cash in advance to avoid nonpayment risk, most foreign competitors are able to offer open account credit terms, which are significantly more attractive to potential buyers. Many buyers now expect credit terms, and companies that are unable to extend credit may lose out on valuable opportunities.
EXIM’s support empowers U.S. businesses to negotiate credit terms (typically in 30, 60 or 90 days) with foreign buyers up front, which is a powerful marketing tool and can be the competitive edge that wins deals. EXIM can cover a company’s entire portfolio of customers or a single buyer.
In addition to reducing the risk of nonpayment and offering open account credit terms to foreign buyers, EXIM’s export credit insurance can enhance a company’s borrowing capacity by assigning now-secured foreign receivables to a lender, improving liquidity and easing cash flow constraints.
EXIM success stories
EXIM has a long history supporting the food industry. This sector represented more than one-quarter of EXIM’s total insurance export value between 2015 and 2017. Most of this support was for small businesses, as this group comprises 91 percent of EXIM’s total authorizations.
Food companies have used EXIM insurance to great effect, and so can your company. Here are a few of their stories:
• Hog Slat is a family-owned business that produces a full range of hog and poultry farming equipment. After years of business, Hog Slat wanted to expand the business by entering international markets. The company experienced difficulty with its international customers because they wanted Hog Slat to have more flexible payment terms. Using EXIM’s short and medium-term export credit insurance, Hog Slat was able to satisfy its customers’ need for flexible payment terms, and the company’s international equipment sales continue to grow.
• Lund’s Fisheries, a family-owned business since 1954, offers the highest quality frozen seafood. Two EXIM products, export credit insurance and a working capital loan guarantee were key elements that supported Lund’s export strategy. With these tools, EXIM has covered nearly $26 million of Lund’s Fisheries international sales since 2012, and the company achieved their growth initiatives. As result, the company has grown its sales, increased the number of U.S.-based jobs and built a globally recognized brand.
• Northern Beef Industries (NBI) is a wholesaler of beef and pork products for sale to U.S.- and Mexico-based food companies, institutional food distribution companies and grocery stores. NBI was headed in the right direction with international sales but wanted financial assurance when entering new markets. Since 2007, EXIM’s export credit insurance has provided NBI with nonpayment protection on its sales to Mexico, Costa Rica, Guatemala and Nicaragua.
EXIM gave these companies the peace of mind and the assurance to win new international business. Your company can join them in boosting sales while protecting financial assets. Contact your local EXIM bank representative or email ExportHelp@exim.gov to get started today. NP