Export Finance | The 2022 Ultimate Guide for Exporters | TFG Business Hub

TFG Export Financing Guide

Trade Finance Global / Export Finance | The 2022 Ultimate Guide for Exporters | TFG Business Hub

Export Finance | The 2022 Ultimate Guide for Exporters | TFG Business Hub

When companies export products or services, long payment terms can often create working capital challenges.

The upfront 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 a form of specialist trade finance that can help a business grow and sell to a larger market.

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 the 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.

Download the 2022 export finance guide


Featured Insights

The acceleration towards green and renewable energy through cutting ties with Russian gas The acceleration towards green and renewable energy through cutting ties with Russian gas Conflict with Russia has created a multitude of substantial repercussions for economies around the world, not least an ongoing disruption within the global energy market.
UK halts all fuel supplies from Russia, reports ONS UK halts all fuel supplies from Russia, reports ONS In addition to the joint sanctions placed on Moscow by the UK and other NATO countries in February, Office for National Statistics (ONS) figures have confirmed that UK private energy firms no longer import any oil or gas from Russia.
Trade loans and secondary trading: BAFT v LMA Trade loans and secondary trading: BAFT v LMA Trade loans are used to finance transactions involving import or export trading and reflecting different stages in the commodity trade cycle, from pre-export financing to borrowing base facilities.

All trade loans, however, are used to finance imports, exports, or other trading transactions.

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Export Finance – Frequently Asked Questions

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

ITFA
ICC
FCI
Institute of export
SME Finance

Download the 2022 export finance guide


Contents

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About the Author

Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies. Prior to joining TFG (tradefinanceglobal.com), Mark qualified as a lawyer with a top ranked global trade and structured commodity finance team.

Mark has previously advised commodity trading firms, banks and alternative capital providers on international structured trade financings, pre-export, prepayment and limited recourse structures – notably in the oil, soft commodities and metals sectors. This has included mining finance projects, structured letter of credit facilities, receivables discounting and forfaiting agreements.

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