Strategies to Finance Growth Through Global Trade

Working capital solutions pave the way for international business opportunities.


International expansion is often the best way to fuel business growth, but the logistics involved in managing cash and liquidity can appear daunting. By taking advantage of new technology and partnering with companies that are experienced in international trade, however, Canadian companies can take advantage of global opportunities without the worries and difficulties of the past.

Global companies can identify opportunities to achieve working capital efficiencies by managing trade, payments, and security risk.

The Challenges

Typically there are three challenges that are common to many organizations expanding into new markets, according to executives from HSBC.

The first is the elongated cash cycle. Reesa Shurgold, assistant vice president for Global Trade and Receivables Finance of HSBC Bank Canada, says this situation can be difficult, especially in today's competitive international arena. “Everyone is 'enjoying' the pressure that has been put on their working capital by some of the larger retailers who are really flexing their muscles and stretching the payment terms," she says, with irony.

The second challenge is reducing manual processes involved in reporting and checking the status of the company's cash position, as well as moving among currencies. The third challenge facing companies operating globally is foreign exchange risk.

Emerging opportunities with RMB
Canadian firms been able to exchange Canadian dollars (CAD) for the Chinese currency renminbi (RMB) directly since March 2015, through a Canadian-based trading hub, eliminating the need to exchange CAD for another currency in order to transact in RMB.

There are some specific benefits a Canadian business can gain when operating in RMB:
• Opportunity to gain market share because of the ability to pay in the local currency and the elimination of fees from converting from one currency to another
• Potential to mitigate exchange-rate risk
• Better management of liquidity between China and global operations
• Simplifying processes and improving local capital efficiency

Lisa Perdue, vice president of Corporate Treasury Solutions of HSBC Bank Canada observes that any company looking to use RMB should start by getting an idea of what the banks across Canada, and across the world, are forecasting as far as the exchange rates for the Canadian dollar and for RMB. It is important to have a sense of whether the value of Canadian currency might decrease or increase by the time the product is delivered, although there is always a risk involved in such predictions.

Understanding time horizons—how far out a company can forecast the relative exchange rates for its incoming U.S. dollars and outgoing RMB—and being able to limit the probability of loss from fluctuations in the two currencies, otherwise known as hedging.

Efficiency, multi-tasking, communications, transparency, and a controlled environment are all important in currency trading. “A number of companies are decentralized," Perdue noted. If that's the case, one part of the company could be paying fees to buy U.S. dollars when customers may be paying you U.S. dollars shortly. “That might happen within one day," she added. Her recommendation is to centralize most foreign exchange transactions to keep track of incoming and outgoing monies.

Perdue strongly recommends that companies have a hedging policy to deal with currency fluctuations across all the countries in which it does business, and to evaluate it frequently.

Technology and Cash Management
Technology enables just-in-time cash management, explains Rahul Sharma, regional head of sales for Ontario, Payments and Cash Management. “The crux of cash management is pushing out your payments so you can make them at the last possible second, and on the collection side, to collect that money as soon as you can," he said.

Electronic funds transfer, for example, not only allows companies to transfer money immediately, but also reduces the possibility of cheque fraud that is inherent in paper transactions. For collections, sending a pre-authorized debit to customers eliminates the time otherwise spent waiting for cheques; the money can be deposited directly into the company account.

Trade and Receivables Financing 
As a global bank with a long experience working with companies that operate in multiple countries, HSBC can accelerate a customer's expansion into new markets by providing security and reassurance to the foreign counterpart. Although companies outside of Canada might not know your company, their confidence is increased because they know they are working with a reputable international bank.

HSBC is geared to provide individualized guidance to Canadian companies as they expand globally. “You will have one relationship manager who will handle everything and make it easier for you to do business abroad," Shurgold explained.

A wide variety of flexible trade financing solutions offered by HSBC can help businesses gain access to and improve their working capital. Some companies may think that they are fine using their existing margined loans, and that it will cost them more to add new forms of financing for trade, but that is not always the case.

A traditional margined loan is based on current inventory and receivables, which can be challenging for businesses when comes time to fulfilling a new order. Trade structured facilities allows for suppliers to be paid up front and receivables to be discounted in order to match your trade cycle, from a financing perspective.

For exporters, pre and post shipment financing solutions can allow faster access to cash, to cover expenses and manage working capital efficiently. For importers, finance solutions can cover the cost of supplies needed to fulfil sales, usually well in advance of payments. Trade financing can also be used complimentary to existing margined loans in place and, in fact, may cost less than traditional forms of lending.

Some of other solutions HSBC can offer to companies expanding internationally:
• HSBCnet - Visibility online, in real-time, of account balances and the ability to execute transactions around the globe, including foreign exchange and trade
• Multiple cash management options to bridge the time between invoicing and payment
• Electronic invoices and payments that reduce the risk of cheque fraud and get money into the right accounts much faster
• Automated reports that provide greater transparency into your business
• Recommendations for hedging strategies that mitigate currency-exchange risk


HSBCnet services are provided in Canada by HSBC Bank Canada. HSBCnet features and functionality vary by country. Subject to Canadian sanction regulations.
The information presented is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without first obtaining specific professional advice. While reasonable care has been taken in preparing this document, HSBC does not make any guarantee, representation or warranty (express or implied) as to its accuracy or completeness.  The information presented in this document is subject to change without notice. 

Certain of the products and services offered by HSBC and its subsidiaries and affiliates are subject to credit adjudication and approval. This document does not constitute an offer to provide the services and products described and the provision of such services and products remains subject to contract.

Issued by HSBC Bank Canada ("HSBC") 
© Copyright HSBC Bank Canada 2015-2016.  ALL RIGHTS RESERVED.

Best Global Trade Finance Bank, GTR Leaders in Trade 2014

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