UK Export Finance: clearing your path to trade
Australia is ranked by the World Bank as the 10th easiest country in which to do business. You can set up a new business in Australia within 2 days. In 2015 its GDP per capita made its citizens among the world’s top 5 wealthiest. It has strong business and consumer base, a strong technology sector, similar language, culture and business practices to the UK, and strong intellectual property (IP) protection.
The main challenge for UK businesses is an elementary one: distance. But this hasn’t stopped over 1,000 British businesses operating in Australia, including well-known companies like BP, HSBC, Virgin, British Airways and BT, as well as hundreds of small and medium sized companies.
According to the latest Australia trade and export guide from the Department for International Trade, top UK exports to the country include road vehicles, medicines and pharmaceuticals, machinery, professional and scientific instruments and apparatus, beverages, apparel and clothing accessories, and metal manufactures. Other sectors identified as opportunities are broad, such as rail and road infrastructure, software and communications, commodities and retail.
Successful trade with Australia has the potential to stretch the capacity of even large firms. So it is a good idea to spend some time considering financial management, from securing working capital on competitive terms, to considering export insurance, or fulfilling requirements to obtain performance bonds.
Most exports from the UK to Australia are sold on short credit terms of typically up to six months. However sales of capital goods or construction projects are usually arranged on longer terms, and very large capital goods such as aircraft can be supplied on payment terms of 10 years or more.
Specific issues to manage can include:
- Having to wait for payment, restricting cashflow
- Being exposed to the risk that the buyer cannot (or will not) pay for the exports – for example, if the buyer goes bankrupt
- Being asked by the buyer to provide a performance bond in return for an advance payment. The bond would need to be provided by the exporter’s bank which is likely to ask for cash security, another potential cashflow restriction
HM Government support
Exporters can talk to their bank or approach other specialist financial organisations to try to secure working capital, and to insurers or brokers to source insurance against the risk of not being paid. Where they are unable to find all the support they need from these sources, UK Export Finance (UKEF) may be able to help.
In recent years UKEF have supported UK exports to Australia in the energy, oil and gas, mining, sports, marine, automobile and technology sectors.
We can consider support for all exporters, large and small, across a wide range of sectors. UK Export Finance currently has the capacity to support at least £1 billion of new export business to Australia. We provide guarantees, loans and insurance with the resulting obligations carrying the full faith and credit of HM government – the most powerful partner a UK exporter can hope to find.
A wide range of support
Types of assistance UKEF is able to offer, in the right circumstances, include:
Bond support – Under our Bond Support Scheme we can offer guarantees to banks issuing performance or other contract bonds in relation to UK exports to Australia. This often means the bank can issue the bond and also expand working capital facilities for exporters, as the extra credit is guaranteed by UKEF.
As an example, in 2013 UKEF helped a specialist provider of pipeline filters and strainers, Vee Bee Filtration, obtain the contract bond it needed to secure a £1.7 million Australian contract. Without a UKEF guarantee for its bank, the need to set aside its own cash cover against this bond would have restricted its cash flow and held back the firm’s growth. UKEF guaranteed a proportion of the bond which helped release cash to fund its work on the contract – and seek other business as well.
“Our turnover was £6.4 million, so this single contract worth £1.67 million was very significant,” said Nikki Reynolds, Finance Manager at Vee Bee. “We already had a £1 million bond facility with our bank, but the size of the bonds for this new contract would have strained our finances too much for comfort. Our regular bank wasn’t able to increase our bond facility, so we looked to UK Export Finance for help.”
Working capital support – UKEF’s Export Working Capital Schemecan enhance your bank’s ability to lend you working capital to support work to support export-related activity. Under the scheme, we provide partial (typically 80%) guarantees to lenders to cover the credit risks associated with export working capital facilities. The scheme is particularly useful in circumstances where a UK exporter wins an overseas contract that is larger than it is used to handling, or manages to win a number of contracts at the same time, but may struggle to finance them all at once
As an example, in 2015 a flexible working capital facility backed by UK Export Finance helped Hertfordshire-based Esprit Digital fulfil its largest contract supplying display screens to Australia.
Both the bond support and export working capital products are accessed through participating banks. If your bank representative is unfamiliar with the products, they can be referred to our ‘Bank toolkit’, which can accessed at www.gov.uk/uk-export-finance.
Credit insurance – our Export Insurance Policy (EXIP) can insure your firm against the commercial and political risks of not being paid under an export contract, where cover is unavailable from the private sector. There is no maximum or minimum contract value for consideration, and the policy can cover up to 95% of contract value. UKEF can also provide insurance protection to exporters against the unfair calling of contract bonds.
If you think we might be able to fill a gap, ask your insurance broker to work through our ‘Broker toolkit’, which can accessed at www.gov.uk/uk-export-finance
Buyer loans and loan guarantees – We can provide medium and long-term loan guarantees to banks making loans to overseas buyers of UK goods and services. In some circumstances, we may be able to lend directly to an overseas buyer to finance the purchase of capital goods and/or services from UK businesses.
Export Finance Advisers – your free resource
UK Export Finance’s regional network of Export Finance Advisers (EFAs) stand ready to offer free trade finance information to UK companies who are exporting or considering exporting to Australia.
The EFAs act as local points of contact to introduce exporters and prospective exporters to finance providers, credit insurers, insurance brokers, trade support bodies and sources of government support. They can also help explain UK Export Finance’s own product range, complementing what is available in the private market.
For more information and to book a meeting with an EFA, search online for ‘UKEF’.