Staying at home saves lives. You can help stop the spread of coronavirus (COVID-19).

Export Finance | What is Export Finance?

TFG Export Financing Guide

Trade Finance Global / Export Finance | What is Export Finance?

Introduction to Export Finance

When companies export products or services, long payment terms can often create working capital challenges. The up-front cost of producing, shipping and delivering the goods can be tricky for businesses to manage. Export finance helps businesses release working capital from cross-border or domestic trade transactions, that would otherwise be tied-up in invoices or purchase orders (for up to 180 days). Export finance is specialist finance that can help a company to grow and increase trade.

Featured Insights

BofA Interview: Bye for now, China? The $1 trillion tectonic shift in global supply chains TFG heard from BofA on the possibility of SCF’s structural shift to localisation.
Podcast: The Transatlantic Trade Love Triangle TFG heard from Elitsa Garnizova, Senior Project Manager and Researcher, London School of Economics on the current updates and what we can expect in this UK-EU-US economic relationship.
Trade Finance Guide 2020 – Now Launched! ITFA and TFG, today, launched their international trade finance guide, aimed at clarifying and defining standard definitions for trade finance products, as well as the risks, challenges and opportunities within trade finance.

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Videos – Export Finance

Export Finance Podcasts




Export Finance – Frequently Asked Questions

How does Export Finance work?

There are several different types of export finance, so structuring varies, depending on which product is most suitable for your business. Often the supplier will request a Letter of Credit or a Bank Guarantee, which is financial security of payment to reduce non-payment risk once they deliver the product or ship the goods. In other cases, the customer might not pay your company for up to 90 days after the product has been received. Once the invoice has been issued, receivables or invoice finance can be used to advance payment. The gap until payment is received is bridged by a financier. Export finance is generally secured, that is, a financier will use the goods or products, the invoices, future cash flow, or the company as security for advancing cash.

 

Why is export finance important?

Generally speaking, sellers of goods or services want to get paid as soon as possible, even before the trade, and buyers want to delay payment for as long as possible, to maintain strong cash flow and provide the buyer time to sell on to their end customers. This means that third parties can add value by offering some form of financial guarantee, bridging the finance gap, and ensuring trust between the buyer and the seller.

Much trade is done cross-border, which can increase the risks involved when importing or exporting goods.

Exporting goods to another country or domestically to a new buyer is inherently risky. Therefore a growing company will want to mitigate some of these risks and also structure their finance in such a way as to allow sustainable growth.

What problems do companies face when exporting?

When a company is growing, it is very difficult to finance in the right way and have the correct processes in place. We aim to assist in that journey and in the event that it is suitable, we have found that export finance can provide significant comfort to both buyers and sellers in a transaction. An example of this is a Letter of Credit (LC) facility; where company X is exporting to company Y. Company X wants to know that payment will be received for its goods. A Letter of Credit facility is set up by the buyer and seller’s banks. On the basis of the conditions specified in the LC, both parties have the comfort of knowing that the other will release goods and payment when a product is shipped or documents are received. This product is used within international trades and structures to promote trust with new counterparties.

The problems that many businesses face are simple distrust or lack of understanding in relation to their counterparty. In the event that there is sometimes blind trust or the incorrect mechanisms in place, then there may be goods sent with non-payment, dispute, internal problems and/or product irregularity, with no security or insurance in the case of enforcement.

How can exporting help a business?

Export finance can be one simple financial instrument or several different facilities which can be structured to ensure some form of financial guarantee and establish trust between a buyer or seller. Whether it is a guarantee of payment from a customer when goods are exported, the advance payment of a transaction so that goods can be produced, or the discounting of invoices from clients to avoid 30-180 day payment delays, export finance can help reduce working capital problems.

Export Finance: What are the requirements?

Export finance is looked at and reviewed on a case by case basis. Generally, a financier would ask for the following in an application:

  • Audited financial statements
  • Full business plans
  • Financial forecasts
  • Statement of Accounts
  • Credit reports
  • Details and references of the directors
  • Information on assets and liabilities
  • History of the company
What are the benefits of export financing?

Export finance helps businesses grow without having to take on other investment such as equity investment, which could involve giving away a share of your company, having additional shareholders and could limit the way you want to grow. Export finance facilities are generally standalone from existing bank facilities, so are often available to those with current overdrafts or loans. Some export finance facilities, such as Letters of Credit, might not get in the way of existing facilities, nor do they always appear on Balance Sheets.

Other types of export finance include:
    • Cash flow from the business or lending
    • Trade finance
    • Letter of Credit (LC), including Standby Letters of Credit (SBLC), which may be used as an insurance policy
    • Confirmations from other banks if required in the cycle
    • Structured finance
    • Cash against documents
    • Financial instruments – bonds/prom notes
    • Insurance backed facilities

Strategic Partners


Contents

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Latest News

17Sep

No increase in export credit insurance claims paid in the first half of 2020 – Berne Union data for 2020 H1

0 Comments

A preliminary report on the business activity of Berne Union Members in the first half of 2020 indicates that the… Read More →

15Sep

AFREXIMBANK and ITFC Partner with ARSO to Facilitate Intra-African Trade in Pharmaceuticals and Medical Devices, under the Umbrella of the AATB Program

0 Comments

The new initiative aims to harmonise African standards for pharmaceuticals and medical devices thereby enhancing intra-African trade, reducing substandard counterfeit… Read More →

10Sep

BofA Interview: Bye for now, China? The $1 trillion tectonic shift in global supply chains

0 Comments

TFG heard from BofA on the possibility of SCF’s structural shift to localisation. … Read More →

09Sep

Podcast: The Transatlantic Trade Love Triangle

0 Comments

TFG heard from Elitsa Garnizova, Senior Project Manager and Researcher, London School of Economics on the current updates and what… Read More →

03Sep

Trade Finance Guide 2020 – Now Launched!

0 Comments

ITFA and TFG, today, launched their international trade finance guide, aimed at clarifying and defining standard definitions for trade finance… Read More →

01Sep

Will Singapore Lose its Lustre Over the Commodities Financing Saga?

0 Comments

Barings Bank collapse. Noble Group’s demise. The 2020 commodities scandals of Agritrade, Hin Leong, Zenrock, Sugih Energy and Hontop Energy…. Read More →

31Aug

UK Government provides over £140 million of support for exports to Ghana

0 Comments

UK Export Finance (UKEF) has announced it will provide over £140 million of financing to support UK exports to Ghana… Read More →

19Aug

International Islamic Trade Finance Corporation Signs US$8 Million Trade Finance Agreement with Uzbekistan based ‘Trustbank’

0 Comments

This Line of financing is in line with ITFC’s ‘Recovery Response Program’ (RRP), aimed at mitigating the adverse socio-economic impact… Read More →

19Aug

TFG announces partnership with Reuters Events flagship Commodity Trading Summit

0 Comments

LONDON, 16th July, 2020. Trade Finance Global (TFG), today announced a media partnership with Reuters Events flagship Commodity Trading Summit,… Read More →

14Aug

What is UKEF’s Export Development Guarantee?

0 Comments

Under the Export Development Guarantee (EDG), UKEF can provide partial guarantees covering up to 80 per cent of the risk… Read More →

Back to Top