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Managing the risks of exporting with NZECO

When a leading Taiwanese retailer sought out high end drinks company NZ Natural Juice, it was the Napier-based company’s biggest export opportunity yet. But even for the small $50,000 shipment, ‘payment-up-front’ wasn’t an option, and a loss of that size for a small growing business wasn’t a risk the company were willing to make. They reached out to the private sector for insurance, but were soon referred to the New Zealand Export Credit Office (NZECO), a government agency which helps exporters manage payment risk, secure sales and access trade finance by providing buyer insurance and financial guarantees.

As one of several government export promotion agencies, which include NZ Trade and Enterprise, MFAT, MPI, and Callaghan Innovation, NZECO assists exporters when private insurers or banks may not have the capacity or appetite to support a certain business. In NZ Natural Juice’s case, they were referred to NZECO by private insurers because of the small size of their shipment. “We got the financials of the buyer and made our credit assessment, and when we went back to NZ Natural Juice, we said we’d be prepared to take risk on this buyer,” explains Head of NZECO Chris Chapman. “We were happy to provide insurance which gave them the confidence to send their first shipment up to Taiwan with the view that if they’re paid well and the Taiwanese retailer sell their goods well, it might be the beginning of a fruitful trading relationship.”

Since its inception, NZECO has underwritten over $1 billion worth of risk, which has supported $2.5 billion worth of export transactions into 82 countries. And with increasing numbers of New Zealand companies exporting, the need for firms to protect themselves in the international market has become more crucial than ever. “Exporters should be thinking about how much financial risk they can afford,” says Chapman. “The type of risks we’re talking about are where a buyer might say to them that they don’t want to pay everything upfront, or that they’d like to receive the goods and then maybe pay once they arrive in the country.”

Although a third of the companies NZECO has helped have been small businesses with turnovers of less than $5 million, it’s also supported some of New Zealand’s larger exporters as well. “We’re always very interested in helping proven companies who are looking to make a step change,” says Chapman. “Often these are manufacturing or ICT companies that might get a project that takes them several months or years to deliver, and with larger projects, the risks of non-payment or financing are key things to consider.”

One such company was Christchurch design and manufacturing firm HydroWorks which had landed itself an $8.5 million contract to refurbish a hydroelectric plant in Queensland, Australia. Bank guarantees were required by the buyer before they would release advance payments to help with HydroWorks’ working capital. Their bank was unable to issue these guarantees without additional security, which is where NZECO stepped in.

“If a company approaches us, we’ve got a team that will go out and meet the company to discuss their objectives and what challenges they might face,” says Chapman. “People often underestimate the cost and time it’ll take to achieve these sales, so we provide our perspective and determine whether there’s a role for NZECO to play to help these businesses go further.”

To find out more about insuring your business, contact NZECO on (04) 9176060, email [email protected], or visit www.nzeco.govt.nz.
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