What is export finance?

Export finance is financial assistance given by banks and other financial institutions to businesses looking to export and sell products overseas. Export finance allows businesses cash-flow or working capital, that might otherwise be caught up in invoices that take weeks or months to be paid. It plugs the gap to keep businesses running and growing while payments from abroad are settled – without the need for business owners to dip into their own pockets.

Long payment terms can be a killer, especially when up-front costs – such as raw materials for production and storage facilities – are part and parcel of your export business. Export finance maintains the flow of buying and selling goods abroad and can help your business to thrive.

What exporting costs are there?

As an exporter or export business, you may require money to:

• Pay for resources to fulfil an order
• Fill the gap between delivering goods and being paid for them
• Insure against the risk of non-payment
• Tender for large projects
• Market your products or services
• Visit overseas markets

Trade and export finance can refer to specific financial products that take the risk out of selling internationally, and may include:

• Guarantees or letters of credit to help you get paid
• Working capital loans to fulfil orders
• Insurance against not being paid
• Finance to your overseas buyer to allow them to pay for your goods and services over a longer period
• Process payments in other currencies

What are bonds and guarantees?

Should the seller not deliver the goods or services as stated in the contract, the buyer can ‘call’ the bond or guarantee. That is, the buyer receives financial compensation courtesy of the seller’s bank. Types of bonds and guarantees include: advance payment guarantees, tender guarantees, performance guarantees, retention money guarantees and customs bonds.

What are letters of credit?

Issued by a bank, a letter of credit guarantees that the buyer’s payment will be received on time and in full. This assumes that the goods (or services) have been supplied as agreed. In the event the buyer is unable to pay the entire agreed amount, the bank covers the amount remaining. Acting on behalf of the buyer (the holder of the letter of credit), the bank makes sure the supplier is not paid until all goods have been shipped.

Who supplies export finance?

Export finance support is available from various sources. In many countries, government schemes are in place to provide grants and loans to help companies with exporting costs. Export finance is also available from banks and financial organisations, some of which specialise in this area.

Where can I get export finance support in the UK?

In the UK, the Export Credits Guarantee Department (UK Export Finance) acts as the UK’s export credit agency with a mission “to ensure that no viable UK export fails for lack of finance or insurance while operating at no net cost to the taxpayer”.

UK Export Finance (UKEF) provides the government’s financial backing to give credit insurers and lenders the confidence to provide financial support for those wanting to export.

With a total capacity of £50bn to support UK exports and products and services available for over 200 overseas markets, UKEF provided guarantees and insurance totalling £14bn to support over 220 exporting companies between 2013 and 2018.

What are the differences between export finance and trade finance?

Trade finance differs from export finance because it’s financial support that helps businesses to trade either domestically or internationally rather than helping businesses to sell goods and services abroad.

According to The World Trade Organization (WTO), around 85% of world trade relies on trade finance of a short-term nature. The WTO sees trade finance as an important link in the process to keep global finance flowing.

Finance is often provided for specific shipments of goods and over specific periods of time. The goods are the asset being funded against and so, until repaid by the borrower, the goods remain the property of the finance provider. Letters of credit, bills of exchange and bank guarantees are used to support the trade finance agreement.

What are the benefits of export finance?

  1. The route to business growth – This is an opportunity for your working capital to be freed up and your business assets to work for you. Perhaps better cash-flow will help you land that next client. Maybe more money in the bank will help you tender for larger projects and then trade new products or services at higher volumes. What if export finance just made a difference in the day-to-day running of your business and employee productivity? In the absence of cash to hand, export finance can help your business develop as it should.
  2. Higher revenue potential – Export finance allows buyers to request higher volumes of stock from suppliers overseas, meaning your business can take advantage of economies of scale as well as discounts for bulk buying. Export finance can also help maintain and cultivate the relationship between buyers and sellers, making everything run more smoothly for all involved.
  3. More trade and supply chain efficiency – Helping to finance the entire supply chain, from the provision of raw materials to payment by the end customer, export finance can facilitate the opportunity for increased trade as well as a transparent process between countries and currencies.
  4. Fewer risks from suppliers – Export finance reduces the risk of being dragged down by suppliers who go out of business by providing insurance against not getting paid. External financing and assurances could be the safest route to avoiding bankruptcy and securing the future of your export business.
  5. Expands the supplier network – Business owners can open up their supplier network to international companies once they gain the means to start trading overseas. This can not only increase competition but also drive efficiency in markets and supply chains for an all-round better business process. 

Whether you need to fill the gap between ordering and selling goods overseas or spread your wings and explore new markets, export finance is available from numerous sources and in various forms – from government grants to banks and other financial institutions.

An excellent option for export businesses that want to free up enough working capital to expand their supplier network and increase revenue potential without taking unnecessary risks, export finance is a positive move towards business growth.

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