Part 8: Importing from China
Importing from China: 4 Facts about cash flow and how to buy on credit from China.
4 FACTS ABOUT CASHFLOW AND HOW TO BUY ON CREDIT FROM CHINA:
- What is it and how to recognize the warning signs on a cash flow shortage?
- What are the causes of cash flow problems in business?
- Cash flow solutions for small business.
- Trade Finance and credit buying from China.
Cash flow shortages constitute one of the most common threats when it comes to business management. Regardless of what sector your company operates in, cash flow can always undermine the essence of your business. Given the complexity of import- export, the following list will provide current and future entrepreneurs with a wider and more helpful understanding of the ebb and flow of cash flow management:
1. What is a cash flow shortage?
Essentially, a shortage is a situation where the demand exceeds the available supply. In a case of cash flow shortage, we have to look at the demand as the comprehensive amount of expenses and costs which we have to deal with. Supply can be considered as the overall volume of financial resources at our disposal. If the costs exceed resources, it will result in a shortage.
2. How can I know if I am about to go through a period of cash flow shortage?
There are multiple symptoms of cash flow shortages. The most common ones are consistent late payment of supplier invoices, delays in payment of taxes and employee superannuation. In the worst-case scenario, it culminates with your company being late paying wages to staff.
3. What are the fundamental causes of cash flow shortages?
Similarly to the symptoms, the causes can be varied:
- Decline in sales: a loss in sales may have a devastating effect on your cash flow. It's no surprise that this is the number one cause.
- Poor credit approval: it is sad to admit but these days almost every business is highly dependent on [traditional] financial institutions. Therefore, it is recommended to have multiple financing options, should you face a credit crunch.
- Too much credit to customers: as is often the case, we tend to allow credit in order to facilitate relations with partners, especially in long chain industries like construction. It's tough to manage multiple long payment cycles across a customer base and it's easy to get stung.
- Too much stock: particularly for conglomerates which export from China to other destinations, the shipping time can be significant. Hence, many of us can opt for purchasing higher volumes; if that's the case, warehouses need to be managed very efficiently as many products can expire or not be sold. Therefore, we should focus on managing efficiently the amount of units that we store.
- Overtrading: when it comes to overtrading, companies are exposed to too many expenses (rent, personnel, management costs) and this may result in them being overstretched and not having adequate amounts of cash to ensure the growth and profitability of their businesses.
4. I think I am in a experiencing a cash flow problem, am I doomed?
Not at all! There are solutions out there for you. We fully understand the importance of promptly dealing with a potential shortage. That is why our marketing division has been working hard to identify the solutions for every type of business active in importing from China.