Export finance UK

Here we look at the ins and outs of export and import financing from different sorts of export finance to general criteria and terms - our experts have it covered!

What is export finance?

The period between exporting products or services and receiving payment can be a lengthy one, resulting in working capital issues. The upfront costs involved in exporting business worldwide can be huge, including; production, shipping and lengthy delivery times, prior to receiving payment. Export and trade finance relives the gap between expenditure and income, enabling companies to increase trade during periods when cash flow management can be tricky.

How does export financing work?

Understanding exactly how does export finance works is pretty straight forward as a whole, bridging the gap between expenditure of exporting products and receiving payment from importer. However there are various types of export finance. Here we look at the differences between them and explore in a little more depth how export finance can aid cash flow management.

Pre Export financing

Pre-export finance definition (sometimes referred to as packing credit) is, as the name suggests, finance which is applied for prior to shipment of the goods. A pre-export finance facility can be agreed for raw materials long before completing the finalised product, and well before shipping stage. However a pre export finance loan can only be agreed once a solid order is placed from the importer. Pre export finance structures allow funding to be borrowed over a 180 – 270 days period.

Post Export financing

Post export financing is offered after the goods have been dispatched to the importer. This type of export finance transaction is designed to bridge the gap between the initial cost to the exporter and receiving payment from the importer, which can take up to six months. The export finance company will agree to lend based on the invoices issued to the importer, usually over a period of 90 days however can be longer depending on the lender.

Export financing under the deferred payment system

Export financing under deferred payment arrangement is available for companies looking to import and export products. It falls under two categories;

Suppliers finance – available to the exporter to enable them to sell and export goods to other countries.

Buyers finance – enabling overseas buyers to import products from overseas, paying in agreed instalments.

Export finance procedure - how it works

Although each type of funding varies slightly, the export finance process remains similar no matter which export finance types you decide are best for your company. So what can be expected during the application process?

Procedure of import/export finance under letter of credit

In the majority of cases the lender will request a Letter of Credit as export finance guarantee. This acts as security for them and provides some protection against non-payment. There are five main types of export finance letter of credit:

  • Irrevocable
  • Revocable
  • Unconfirmed
  • Confirmed
  • Transferable

Irrevocable/revocable letters of credit

Revocable letters of credit can be withdrawn or changed by the bank at any time and for any reason. However irrevocable letters cannot be unless both parties are in agreement, these carry more security.

Confirmed/unconfirmed letters of credit

Confirmed letters of credit are generated by the issuing bank (buyers bank) The letter is then checked by the sellers bank in the manufacturing country. For extra security the seller may also need the letter to be confirmed by the bank that checks it. In doing so the sellers bank agrees to guarantee payment, even if for some reason the buyers do not pay for the exported goods. Therefore a confirmed letter of credit provides more security than an unconfirmed one.

Transferable letters of credit

Transferable letters of credit can be passed between one beneficiary and another, meaning that payment is made to the beneficiary that the letter is passed to.

NOTE – BANKS MAY CHARGE TO DRAW UP LETTERS OF CREDIT

Letters of credit are regulated by UPC (Uniform Customs and Practice for Document Credits.) For further information follow the link below, the International Chamber of Commerce issues training and guides in relation to UPC and financing export under letter of credit.

INTERNATIONAL CHAMBER OF COMMERCE UPC

What are the benefits of Export Finance?

The main advantage of export financing is that it bridges the gap between the large expenses of exporting products and receiving the final payment. Export finance enables cash flow to remain steady during these periods. Export finance methods are stand-alone facilities so often available to those with existing borrowing such as overdrafts or loans. Using a third party provides financial guarantee to both buyer and seller. Utilizing an export financing strategy with guarantee allows companies to mitigate the risks of exporting and agreeing sales with new businesses.

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Export finance credit document requirements

As with the majority of credit agreements each application is underwritten on a case by case basis.  Export finance advisers normally require the following financing documents prior to application;

 

  • Solid company history
  • Business plan including financial forecast
  • Statement of accounts including assets and liabilities
  • Satisfactory credit reports
  • Directors referencing

 

Export finance companies will expect the above as a minimum, ensuring your application is packaged correctly will give you the best possible chance of agreeing the finance quickly and efficiently, using an export finance specialist to do so will also aid your application.

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Short term export finance

Funding is normally agreed in over a shorter period of time. Export finance terms start at 30 days and in some cases extend up to two years. It also worth bearing in mind that finance can often be agreed quickly, providing the application is packaged correctly.

Export finance and insurance

Both the UK Government and brokers offer export finance insurance, which can cover up to 95% of the loan amount against potential risks such as; political and economic events, insolvency of the buyer and failure of the buyer to pay the amount due. There are two types of scheme available, Export working capital scheme and the Letter of credit guarantee scheme. Export finance risks are minimized with insurance in place.

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Export finance interest rates

The cost of funding rates will largely depend on which export financing methods you use and the services you require alongside your application. Quotes are provided on a case by case basis, after your requirements have been discussed, for your tailor made quote speak to an experienced industry expert.

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How can Merchant Advice Service help?

At Merchant Advice service we work with industry experts who deal with export financing on a daily basis. Our team of UK based advisors have a wealth of knowledge, enabling a smooth and efficient service from enquiry to completion.

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For further information please refer to our full terms and conditions HERE.

Make a quick enquiry

Speak to us directly and get any questions you have answered. Submit your details and we’ll be in touch shortly.

Agree

Tick this box to allow Merchant Advice Service and partnering firms to contact you in relation to your enquiry and associated services. Note we do not use pre-ticked boxes or any other type of default consent. We may use the data on this form to to pass you onto an advisor who suits your specific needs. You may withdraw your consent at any given time.

We will keep record of your data and consent granted to us. Your consent will be reviewed on a five yearly basis to ensure that our relationship and the purpose of the data have not changed.

We act on requests to withdraw the information we hold on you as soon as we can.

For further information please refer to our full terms and conditions HERE.

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