| August 26
Alternate Methods of Financing for Exporters Specially SME/MSME
In today business Environment, the global
markets becoming accessible to SME and MSME businesses, selling goods in the
international market opens up a great set of opportunities for exporters.
However, the biggest challenges most
exporters face are the elongated payment cycles from buyer’s especially large
buyers who buy on Open credit/ DA. This issue is relevant to both large and small
business, while large and established businesses face few challenges in
accessing funds from banks, small and medium enterprises have difficulty
accessing working capital. The Banks (and other similar institutions) require
lot of documentation including periodic submission of proofs of hard collateral
and organised financial statements, which many SME/MSME lack.
One of the fastest and easiest ways to offset the
impact of outstanding account receivables on cash flow is by selling the export
invoices at a discounted rate to a factoring company.
Such kind of Export Finance solution helps to
bridge the credit gap between small and large enterprises by making it easier
for an SME/MSME’s to gain access to export finance without the need of any hard
collateral or business financials.
In any cross-border trade transaction, it is a common manifestation that
the foreign buyer asks for certain credit period, while it is in the best
interest of the exporter that the buyer makes the payment upfront. There is
always a mismatch between actuals and expectations. Further at times there is
also a general lack of faith in this form of trade as it involves two entities
from different geographies.
Export receivable factoring takes care of both these issues, it assists
the exporters with financing so that they can agree to the foreign buyer’s
credit terms, and it also mitigates the risk involved as both buyer and seller
have some certainty about their transaction.
The funding company provides post shipment Trade Finance where in once an
exporter has shipped his goods, he submits his invoices to financier and 80% of
the invoice value will be funded within 24 hours. The remaining 20% will be
funded once the financier receives the export proceeds from the Foreign Buyer
after debiting processing and interest charges.
The financier provides unsecured trade finance which does not require
any hard collateral and an online portal where exporters can upload their
invoices and get their invoices financed quickly, without any hassle of
paperwork. The flow is as follows