Going global: SME working capital financing strategies for cross-border trade


  • According to the Singapore Business Federation (SBF) National Business Survey 2017/2018, companies engaged in overseas business activity has risen to an all-time high (83 per cent), and this mostly consists of SMEs.

  • Despite this trend, SMEs are facing new challenges when entering the international arena. One of the biggest challenges they face is working capital financing.

  • According to a study, medium-sized companies (with turnover of S$10 million to S$100 million) are struggling the most when managing their working capital. SMEs need to resolve these issues to be able to compete globally and access new markets.



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    Posted on 24 October 2020



    working capital financing

    One of the biggest challenges SMEs face when it comes to overseas expansion is working capital financing. PHOTO from ED#84 2019 Mar/Apr Pg 24




    As a nation with a relatively smaller domestic population, Singapore businesses have always thrived on being able to enter global markets. This ongoing trend of internationalisation is largely driven by Singapore’s advancements in innovation.

    Lazada, TWG, Razer and BreadTalk are examples of successful businesses. With the spread of innovation and knowledge democratised through technology, internationalisation is no longer dominated by larger corporations. In fact, SMEs are now going global at a faster pace than ever.

    According to the Singapore Business Federation (SBF) National Business Survey 2017/2018, companies engaged in overseas business activity has risen to an all-time high (83 per cent), and this mostly consists of SMEs.

    This can be attributed to the efforts of the Singapore government where Enterprise Singapore offers programmes such as the Market Readiness Assistance grant and Enterprise Development Grant.

    Despite this trend, SMEs are facing new challenges when entering the international arena. One of the biggest challenges they face is working capital financing and gaining access to additional working capital.

    According to the latest Singapore Working Capital Study by PricewaterhouseCoopers (PwC), medium-sized companies (with turnover of S$10 million to S$100 million) are struggling the most when managing their working capital.

    Hence international expansion will further strain their financial resources as keeping up with global payments are hard to manage and predict; financial institutions could also overlook the SME segment. To compound this problem, SMEs also face concerns on cross-border transaction fees, as well as foreign exchange rates.

    SMEs need to resolve these issues to be able to compete globally and access new markets. Traditional versions of trade finance that have worked well for larger corporations are not very accessible for SMEs. Therefore, at the intersection of internationalisation and access to financial resources abroad, SMEs are looking for new options. This pertinent need will be driving a revolution in how cross-border payments and trade finance are done.



    working capital financing

    Working capital financing is financing for your business day-to-day expenses. PHOTO: PIXABAY




    Working Capital Financing Solutions for SMEs



    Emergence of online FX and remittance solutions

    Bank transfers, SWIFT charges, and FX markups have typically been a pain, but with newer web-based solutions, SMEs have more clarity on how much to send, the speed of transfer, as well as the best FX rates.

    Because they are technology-enabled businesses, they are more scalable to best serve SMEs and are not as afraid to put forward the best rates. Market leaders such as Transferwise, Airwallex and Instarem are already available for most currencies, and other more niche platforms may provide favourable rates for currencies channels that they specialise in.

    While this may not solve the financing aspect of cross border trade entirely, it does segment and simplify the problem by focusing solely on the FX. This allows SMEs to work on solving working capital concerns from a more domestic perspective, instead of having to tackle both FX and financing at the same time.


    Increasing ease of access with global accounts

    Another option for more globally minded SMEs when it comes to working capital financing, comes in the form of global accounts.

    There are two variations of this service: 1) Service providers offer a multi-currency domestic account, allowing businesses to transact multiple types of currencies from one location, such as Revolut or DBS; and 2) help companies set up foreign accounts in other locations (US, UK, HK, etc.) in a more decentralised method, like Payoneer.

    The former option is more suited for businesses that do not foresee too much expansion in other locations or have many currencies to deal with, whereas the latter can facilitate growth in new regions with a dedicated account in that location. Having access to global accounts gives you flexibility in obtaining finances in a specific currency that is needed, whether it’s from a domestic or foreign financial institution.



    working capital financing

    Global accounts are an option for more globally minded SMEs when it comes to working capital financing. PHOTO: PIXABAY




    Alternative payment financings

    There are ways to find sources of working capital financing that will allow someone to pay on behalf of the SME when performing purchases overseas. Historically, banks and bigger financial institutions offer this type of service, which would be considered as a trade finance credit.

    Getting access to the credit, however, can be difficult depending on the assessment of the current financial status, amount, collateral and guarantees, all of which could make the process very complicated for SMEs.

    In recent years, technology has allowed the source of these funds to come from newer, more accessible sources. For example, peer-to-peer lending can now be applied to cross-border trade financing.

    In addition, SMEs can now directly use existing credit cards to pay globally, regardless of whether the recipient can accept this payment mode. This allows for seamless, secure and instant cross-border payments using interest-free credit for up to 58 days, without having to negotiate with banks for FX or suppliers for longer payment terms.

    Driven by the need arising from a changing SME landscape, alternate businesses models and financial technology are re-shaping payments services and trade financing for more globally minded businesses.

    Traditional payment methods such as direct bank transfers and collateral based trade credits are gradually falling in popularity as newer solutions come to market (even beyond what is mentioned here), offering simpler, cheaper and safer global commercial transaction methods.



    This article originally appeared in the Entrepreneur's Digest print edition #84 and has been edited for clarity, brevity and for the relevance of this website.




    About the Author

    Kevin Kang | Co-Founder | Reap

    As a former finance professional, Kevin has previously led early-stage investments in emerging markets in Asia, based in Hong Kong. He has worked on some of the first investments on new energy projects. Prior to this, Kevin worked in investment banking in Toronto, executing $5B+ USD of M&A transactions and $5B+ USD of capital market fundraisings. Kevin is now the Co-Founder of Reap, which is a platform that allows SMEs to pay domestic or international expenses, including rent, salary and supplier payments using credit cards.