For every company, cashflow is a crucial aspect in order to sustain its activity. In business cash is king especially right now.

There are many reasons to improve your cashflow. It could be for an investment, to establish a security mattress or simply to have peace of mind without having to run after ways to bring in cash quickly.

There are several ways to improve cashflow. This article written by Agicap specialist on the subject will give you different ways to improve your cash flow:

• Boosting your sales.
• Reduce the time needed to collect receivables.
• Use supplier invoice times wisely.
• Different means of financing.

However, when working with international suppliers it is a little more complex because there are other factors to consider: transportation time, customs clearance of goods, volatility of the foreign exchange market, etc.When a company imports goods, payment is usually requested at the time of order. The company will take out cash before the goods are shipped. Depending on the geolocation of the supplier, the delivery time can be longer or shorter. It is necessary to count on average by sea way from France:

• 30 to 45 days for China and Asian countries.
• 10 to 20 days for the USA and Canada.
• Between 15 to 30 days for South American countries.

To know the transport time of your goods: SearatesWith a payment at the order, the company will increase enormously its need for working capital and will put at risk its treasury.Let’s take a common example:Company A orders 10,000 Euros of materials from Shenzhen in China. Its supplier asks for cash payment at the time the purchase order is issued. We will call this date N.The shipping journey of the goods :

Simulation on the cashflow of company A :

• Date N company A pays its supplier -> Cashflow = -10 000 EUR.
• Date N+5 days: the supplier sends the goods. -> Cashflow = -10 000 EUR.
• Date N + 45 days (with a France-China delivery time of 40 days): The goods arrive in France -> Cashflow = -10 000 EUR.
• Date N + 50 days (5 days to sell its goods, which is a record): Company A sells its entire inventory to a customer with a 30-day payment term -> Cashflow = -10,000 EUR.
• Date N + 80 days: Company A collects its sale -> Cashflow= +10 000 EUR + margin.

In our example above company A has a negative working capital requirement of 80 days. Of course the example is simplified to the maximum but due to the transport time the cash flow risk on the transaction is indeed 80 days.Negotiating payment terms if possible with your international suppliers is therefore essential. However, this does not solve the problem in its entirety.Let’s take the same example again, this time company A will have negotiated a payment term of 30 days after the delivery of the purchase order.Simulation on the cashflow of company A :

• Date N company A receives the purchase order -> Cashflow = 0 EUR
• Date N+5 days: the supplier sends the goods. -> Cashflow = 0 EUR
• Date N+30 days: Company A pays its supplier -> Cashflow = -10 000 EUR.
• Date N + 45 days (with a France-China delivery time of 40 days): The goods arrive in France -> Cashflow = -10 000 EUR.
• Date N + 50 days: Company A sells its entire inventory to a customer with a 30-day payment term -> Cashflow = -10,000 EUR.
• Date N + 80 days: Company A collects its sale -> Cashflow= +10 000 EUR + margin.

In this example, Company A will have reduced its working capital requirement by 30 days, but will still have a 50-day gap. The impact of transportation delays is a major issue for importing companies. However, there are different ways to limit this impact:

• Negotiate payment terms: 50% on order and 50% on delivery. Your supplier will not totally lose his liquidity and you will only commit a part of your cash flow on the medium term. This is a good way to create a win-win situation for both parties and therefore to establish long-term trust.
• Work with a financial institution that finances your invoice. At Tulyp, for example, we support our clients in these operations by financing their invoices from 30 days to 120 days. We pay their suppliers when they prove that the goods are on their way and our clients pay us back on the date agreed upfront.

An importing company must have the right partners to manage these different impacts in the best possible way.Tulyp is a BtoB payment and financing solution that supports importers and exporters daily. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.