Wishing to support and finance exportations of German companies out of financial resources as well, may possibly be a systemic dilemma. Business principles, rated as correct and good for a long time, are to be reviewed – also and especially for the volume business including transaction volumes with an equivalent of up to 5 million EUR. Neither customer loyalty nor an excellent reputation is created, if an excellent product is delivered, but its financing flops. Since the financial crisis, a good positioning in the sales financing business has become an essential part of product quality.
When it comes to financing goods, the following simple general rule has applied for several years: invoices according to German law plus credit insurance limit for the customer in an OECD country plus terms of a maximum of 90 = factorable standard receivables = immediate positive effect on the balance sheet by sale of open outstandings (factoring) = improvement of the exporters’s rating and increasing company value. Due to the digitized financing world, standards for the product of factoring have been developed which are simple to apply. Various providers differ mainly by their particular IT implementation and thus, associated with the volume of payments related to the amount of purchased receivables. The creditworthiness of the vendor of receivables loses its importance, compared with the usual rating of banks.
For end users who want to buy a product that can only be invoiced after its takeover in the end user’s country (down-payments excluded), customer loyalty can easily be achieved through providing the end user with the financing locally in his country. Here, the asset class of the product is the main aspect whereas the end user’s creditworthiness is only second. Both ratings take place in the country of the end user, being very helpful as the risk portfolio management of the institutes in the end user‘s country often consists of small structures and cluster risks are rare to be determined. If machinery and equipment is involved, a large number of these specialized institutes exist in Europe, the BRIC states and the USA. They are normally called leasing companies. They are born financiers of equipment, as they are used to include products in their assets, thus being obliged to have an IT equipment, enabling them to record every product. Supervisory authorities consider this advantage very positive. As a consequence, it is possible to finance 100 % of net acquisition costs, even if the end user does not have a good rating.
On this basis, the question raises how to manage supporting and advising the end user – always bearing in mind not to accept a lack of own liquidity and / or other negative effects of sales financing on the balance sheet. For manufacturers and retailers of machinery and equipment, it has been a frequent practice for decades to create a network of leasing companies on a worldwide scale. For this purpose, some manufacturers implemented many resources in countries of end users to support them with their financing process. There is one notable case, where up to 60 full-time employees are working worldwide in this field. Nevertheless, these machines are not very popular as their resalability is limited and the wordwide creditworthiness of end users is rather low for specific sectors. Any other manufacturer of technically sophisticated machinery has chosen another solution, which is significantly cheaper. Those manaufacturers co-operate with leasing companies in Germany, France or Austria, broadly represented – up to now. Since the financial crisis, however, several instutes have withdrawn to the local markets or have at least reduced their worldwide representation. The automatic result for a manufacturer was a patchwork distribution, causing an increase in the number of co-operations with leasing companies.
There are many reasons for exporters to decide against a close co-operation with leasing companies. Reasons which are only favorable from the end user’s perspective are for example the possibility to agree with the exporter or with the provider contracted by the exporter which leasing companies should be contacted or avoided. To achieve a better customer loyalty, credit rating documentation and negotiations about financing on site as well should be kept away from the exporter. Confidence is not built by control but by service and support for a good solution, which is presented on behalf of the exporter by an independent third party as broker and consultant. Naturally, all these activities are in compliance with his employer’s interests, such as a permanent and close relationship between supplier and end user as well as avoiding negative effects of export financing on the balance sheet. ◼
German version published in „Jahrbuch Außenwirtschaft 2018“.