Exporting to the United States

28 November 2019 by National Bank of Canada
Exporting to the United States

United States. What do you need to know before deciding to export? The size of the U.S. territories and its fierce competition can make Quebec exporters reluctant to venture south of the border. Still, many of our SMEs are successful in establishing a presence  with our neighbors. Here are three expert tips to help you succeed.

According to the Canadian's Trade Commissioner Service, the United States are by far our largest trading partner. Over 73% of Canada's exports of goods and services go to this country. "A cautious entrepreneur who does his homework will discover a market with multiple opportunities," says Normand D’Arcy, Senior Manager, International Services at National Bank. For the exercise to be successful, however, you will face many challenges.

Having sufficient working capital

When exporting part of your production to the United States, you need to be able to propose credit terms and conditions to your buyers. The most common payment method is the open account, with a 30- to 90-day credit period. You therefore commit to shipping your goods without even receiving what you're owed. Do you have the cash flow to stay afloat while waiting to collect your accounts receivable?

Mr. D’Arcy points out that National Bank can provide financial solutions to reduce the pressure on your working capital. "Factoring is a process whereby you transfer your client invoices to the Bank in exchange for their immediate payment. This solution takes care of the management of your accounts receivable, so you don't have to. It also gives you more time to focus on your expansion into the United States."

Managing currency fluctuations

Exchange rate fluctuations aren't necessarily a negative phenomenon. Since most transactions are in U.S. dollars, each of these is worth more when converted into Canadian dollars. "The story was different between 2010 and 2013, when the Canadian dollar was stronger than the U.S. dollar," adds Benoit Marcoux, Director of Derivatives at National Bank of Canada.

Unfortunately for Canadian entrepreneurs who export to the United States, we could see another sharp appreciation in the Canadian dollar in the future. The payment you're about to receive would then be worth less than first expected once the U.S. dollars are converted into Canadian dollars. "A derivatives-based strategy would allow you to limit the risk related to exchange rate fluctuations," he says. This expert recommends protecting your profit margins with our hedging instruments adapted to your needs.

Canadian producers currently have an implicit financial advantage of roughly 30% versus their American counterparts when they sell their goods. "Regardless of currency fluctuations, the best time to export is when there is a demand for your products," says Mr. D’Arcy.

Taking the geopolitical context into account

Several of U.S. President Donald Trump's decisions have clearly had an impact on Canadian businesses. In April 2018, the Bank of Canada estimated that the mere uncertainty surrounding U.S. trade policies would reduce Canadian exports by 1% by 2020 and business investment by double that.

"The changing environment in the United States could lead entrepreneurs to evaluate other markets to diversify their global activities. Don't hesitate to change direction if major regulatory changes are introduced. Stay agile!," concludes Mr. Marcoux.


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