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.

How does this works?

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