Pricing as a financing mechanism

Clearly, the export price that you agree to with the foreign buyer impacts on the income you generate and your ability to pay for your export endeavours. If you price too low, there may be little or no profits with which to finance your exports. Price too high, then you can pay back any export-related costs more quickly, but you stand to loose the order because your price is too high. Your pricing strategy is therefore an important input to your financing requirements. Bear in mind that your export price is decided on based on the costs your incur to produce the products in question, and the profit margin you how to achieve, which, in turn, is influenced by the pricing strategy you decide to follow.

Absorbing the credit costs into your export price

In the instance where you decide to offer relatively short-term credit (say between 30-60 days) to the foreign buyer, and your firm has the capacity to do so, it may be worthwhile to absorb the credit costs into your export price. You would include these credit costs as part of your costing exercise.

To learn more about pricing strategies you can follow and the impact that they have on your financing requirements, click here.