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Financing Your Export Operations

Access to credit and finance is always a challenge, the more so, to finance international business where the seller and buyer are in different countries. The most common forms of credit or finance remains banking facility in term of loans or overdrafts. However, the former is always against collaterals and the latter on the company’s track record.

SMEs and first-time exporters have difficulties in accessing bank finance for exports. If the export is against irrevocable Letter of Credit, most commercial banks do provide trade finance in terms of revolving lines of credit for working capital, or through Factoring and Bill Discounting.
CAUTION: All bank services have a cost element in terms of service fee, interest and collaterals. Consult your banker on the services they offer for trade finance and the costs thereof.

PAYMENT TERMS

While the exporter wishes to have quick payment for his/her products/services exported, the importer on the other hand will always wish to delay payment. The importer will always ask for longer payment terms. Due to fierce competition on the export market, unfortunately most exporters offer flexible and longer credit terms to retain their international clients.

While the most secured payment term for international Business still remains Letter of Credit, however, many SMEs find it difficult to obtain LCs due to their track record with their banks.

Two alternate payment terms are:

  • Cash-in-Advance – whereby the importer sends full or partial payment to the exporter on the promise that the product/service will be delivered on time as per specifications.

NOTE: All the risks rest with the buyer/importer

  • Selling-on-open account – whereby the exporter ships the product to the importer together with the title of the product on a promise to be paid by the buyer at a specific  time and as per the  agreement.

NOTE: All the risk rests with the Exporter

EXPORT CREDIT INSURANCE

To protect you from payment defaults by your importer (which can happen due to many causes, one of which can be cheating) it is advisable that you protect your foreign receivables against non-payment risks. This can be in the form of an Export Credit Insurance Policy.

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