When a business sells a product, the payment terms can be lengthy and challenging to manage. Also, consider the time it takes to ship and deliver it abroad. Often, it takes time to receive payment. Extra energy and time are needed to check customer credit worthiness and obtain references.

Almost all sales processes get extended. Even with proper financial and time planning and management, exporting products can impose a financial strain on any business. The difference between the success and failure of a  transaction depends on the time it takes to receive payment.  As such, export finance becomes a crucial factor for exporters.

What is Export Finance?

Export finance involves funding exporters to streamline their business operations in the market. Simply put, it provides cash flow assistance to exporters to facilitate their products and other transaction needs, such as working capital.

International exporters need export finance when they want to guarantee the affordability of their products with the guarantee of receiving payment on time while sending goods abroad.

Types of Export Finance

Let’s look at four types of export financing methods, shall we?

Pre-shipment Finance

This export finance type is provided to businesses for purchasing and processing raw materials into finished products. It remits when businesses require funds before shipments of products.

Packing Credit Finance

You can get pre-shipment finance against the order you receive from an importer in terms of packing credit. Once funds come in from buyers abroad, the amount of the packing credit can be modified.

Post Shipment Finance

This type of export finance gets provided to exporters after shipment. The importer issues an invoice to pay the amount. However, this can take up to 3 to 6 months. The exporter also needs working capital to cover this period. Post Shipment Finance allows them the ability to do this.

Finance Against Collection of Bills

Exporters can apply for a loan against the collection bills to obtain financing to export to different countries. The banks usually agree to finance export bills, which will be repaid by guaranteeing companies if a default occurs.

Benefits of Export Finance

Here are the top benefits of export finance:

It’s Accessible to Everyone

There are many financial arrangements involved with export financing. Sometimes, pre-shipment finance can be used to help a company raise money to fulfill an order. This method often gets done long before invoices can be sent. On the contrary, export factoring and invoice discounting depend on issued invoices. They can be designed to expedite the payment as well as guarantee it.

These systems are all cash flow financing and do not require a company to have a good credit rating or be able to provide security. The international purchase order is a guarantee to the finance provider. The exact amount of this depends on the agreement. Export finance is therefore available to any person with an overseas buyer.

The Funding Increases as Quickly as Your Business Activity

Export finance has another notable benefit to companies: it tells you more about your prospects. It can help increase your funds as quickly as the order book if you want to expand operations beyond borders.

An innovative fintech provider can help you use export finance with supply chain finance and import finance to make sure you always have enough money available to pay for your orders. You can expand faster and get more funds, so you are never held back by a lack of funds.

It Reduces Export Risks

The risks involved in exporting can be overwhelming for a first-timer and headaches for experienced business leaders. Currency fluctuation is one of these risks. Non-payment or disputes are another. These risks can be mitigated by using export finance, allowing you to focus on selling and making your product.

Factoring and invoice discounting are two examples of export finance options. This funding arrangement is called 'nonrecourse.' You can also get insurance as an option. The usual practice is for the finance provider to take on the forex risk.

Do Not Pay For Finance You Do Not Want

Flexible fintech providers allow you to choose the time and date you wish to borrow finance for an export order. If you don’t require the money, there is no need to forward the invoice or order. If you do need to pay the money, it will be for a one-time fee.

It's easy. There are no fees or interest, and the finance gets paid automatically when your customer settles their bills. Contrary to a bank loan, you will never pay interest or account fees for the money you aren’t using.

It Improves Your Cash Flow Management

Late payments in B2B transactions can cause cash flow problems for many companies. You can send an invoice after you deliver a product. But, you may have to wait for the money for 30 - 90 days. 

With export orders, this gap is even more significant, especially when considering shipping times. Flexible export finance lets you choose the time you receive your payment and allows you to raise substantial amounts of working capital.

What is the Importance of Export Financing

Exporters can get financing in different stages of their business cycles. Businesses most commonly use these financing options during pre-shipment or post-shipment.

This funding option can also be useful in the event of suspending export subsidies and collecting invoices throughout a working capital cycle. Businesses generally choose Export finance for the following reasons:

• To establish a new export-based enterprise.

• To expand your business.

• To meet the working cash requirement.

• To keep production undisturbed.

Export Financing Companies in 2022

Take a look at some export financing companies active in 2022:

Standard Chartered Bank

In 2021, one of the leading producers of steel worked with Standard Chartered based in Hong Kong to offer the first backward LC structure using essDOCs. This was the very first cross-border Rmb-denominated blockchain in the world.

We.trade

Distributed ledger's ability for participants to trade transactions to come to a consensus is making it easier to trade internationally with greater reliability. We.trade won the award for Best DLT Platform to Trade Finance. 

The platform was commercially launched in 2019 and is the world's first enterprise-grade blockchain-enabled trading finance platform. It connects buyers, sellers, banks, and logistics companies in an open network that facilitates cross-border trade.

We.trade is licensed by 16 banks in 15 countries.

Commerzbank 

Commerzbank offers trade finance of over 50 billion euros in up to 50 currencies in 150 markets. The company has held onto its reputation through the execution of modern tech that enables it to process billions of euros annually. It successfully funded an international transaction with a Turkish bank through Marco Polo Network that uses DLT.

Export Financing Example in 2022

Trade finance offers many sources of export financing, such as invoice factoring or forfeiting, accounts receivable and open accounts factoring, consignment purchase, export letters of credit, and accounts receivable factoring.

Summary

Export finance is a way for businesses to grow without the need to make other investments such as equity. This could mean giving up a portion of your company or having additional shareholders and could restrict your ability to grow.

Export finance facilities can be used independently of existing bank facilities. They are usually available to people with existing overdrafts and loans. Letters of Credit and other export finance options, like Letters of Credit may not be able to get in the way of existing bank facilities. They also don't always appear on Balance Sheets.