A cycling accessories company has received a US$600,000 export working capital guarantee from the Export Finance and Insurance Corporation to meet increasing international demand for its products.
Knog, a Melbourne-based business providing cycling accessories for urbanites, exports its products to more than 40 countries through a network of international distributors.
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With 96% of its customers based overseas, Knog chief executive Hugo Davidson says the business is heavily reliant on international trade, and substantial growth in demand has led to increasing pressure for cashflow.
“The size of distributors’ orders has increased significantly and distributors are requesting payment terms of up to 60 days rather than full payment upon shipping,” Davidson says.
“In addition, suppliers are asking for more favourable credit terms as Knog’s orders become a larger part of their business.”
“The mismatch between when we have to pay our suppliers and when we get paid by our distributors is a challenge for us.”
Kong appealed to EFIC, the Federal Government’s export credit agency, which provided US$600,000 in trade finance to Westpac, Knog’s bank.
This enabled Westpac to lend the amount to Knog to help finance orders for its products from distributors.
Davidson says Westpac was only able to provide post-shipping finance, not pre-shipping finance, which is why the business went through EFIC.
“What we would’ve had to do [had we dealt with Westpac directly] was put up that security in the form of bricks-and-mortar and we were not in a position to do that,” Davidson says.
“Our challenge was to find a facility that would provide us with bridging finance because that is a facility the banks don’t offer.”
According to Davidson, EFIC is keen to find companies with a “good story” but lack the ability to cover off trade finance.
“EFIC picks out our top eight customers around the world and then establishes a credit rating for each of those companies. EFIC will pay 50% of any of the order values for any of those companies, which easily covers the deposits for any of the manufacturing products,” he says.
“That allows us to move to production much more rapidly. It means that we can really maximise our relationship with these current customers.”
“Our cashflow will be more even and we’ll be able to pay suppliers earlier. This should also help us negotiate favourable supply prices and offer better payment terms to our main distributors.”
Davidson says other export-ready businesses should approach the agency about funding a shortfall in trade finance.
“EFIC bent over backwards to make things work for companies like ours because they’re keen to get export-ready companies up and running,” he says.
According to EFIC SME executive director Andrea Govaert, fast-growing SME exports often find cashflow shortages threaten to stifle their growth.
“EFIC’s export working capital guarantees can help exporters by enabling their bank to lend them more working capital. Knog is a great Australian brand and we’re pleased to be able to contribute to its increasing international success,” she says.