EFIC helps Australian exporters to keep working capital flowing

15 Sep 11

For an SME pushing for rapid growth, tying up that much working capital could stifle further business development.

That’s when ES and S’ bank suggested they talked to EFIC. Melbourne-based ES and S has provide weather and meteorological solutions in locations as far afield as Antarctica and Samoa, for clients from China, Korea and Japan.

Like many SME businesses, ES and S faces the constant challenge of maintaining enough working capital to win contracts, deliver on contracts, develop business opportunities, and generally keep the business running.

To win contracts with the Polar Research Institute of China and the Defence Acquisition Program Administration of the Republic of Korea, ES and S were required to provide advance payment and performance bonds to their buyers.

These bonds give a buyer comfort that if an exporter doesn’t perform the contract obligations, they can claim for lost upfront payments and related losses. An exporter usually asks its bank to issue the bonds in favour of its buyers. However, to do so banks generally require the exporter to provide assets to secure the bond.

Sometimes all available assets are already secured or valuable working capital is tied up to provide this security.

Export Finance and Insurance Corporation (EFIC), Australia’s export credit agency, helped ES and S by providing guarantees to ES and S’ bank to satisfy the security requirement. This allowed the bank to issue the advance payment and performance bonds to ES and S’ buyers.

“EFIC’s financial assistance helped to free up our working capital so we could meet the customer’s requirements,” said Bob Wright, CEO of ES and S.

Recently ES and S won a subcontract as part of Japan’s Grant Aid programme for improving the weather forecasting system and meteorological warning facilities in Samoa. Under the subcontract, ES and S received periodic payments from its customer, however, the time lag between when ES and S incurred costs and received payments meant that the company faced a working capital shortage and needed additional funding to perform the subcontract.

EFIC provided a six-month $500,000 export working capital guarantee to ES and S’ bank, ANZ, enabling the bank to lend the same amount to ES and S.

“EFIC’s support enabled us to access additional working capital to undertake this contract and provide essential improvements to Samoa’s weather forecasting and meteorological warning facilities while continuing to expand our overseas business,” said Colin Cookes, Owner and Chairman, ES and S.

For more information: visit www.efic.gov.au

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