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Share Market | May 16
Alternate methods of financing for Importers

In the last article we discussed about the Structured Trade Finance Options for exporters, in this article we would be discussing various structured trade finance options for importers. Importers can mitigate some of the risks and get access to enhanced financing facilities through these customised Trade Finance options.

Some of the challenges that Importers in India face are:

· Complications because of regulatory restrictions

· Import duties impact

· Freight costs

· Delays in getting the goods at the port and further at one’s own warehouse

 

Structured Trade Solutions helps the importers in overcoming the financing and Incoterm challenges. Importers have to not only worry about Working Capital but also the Working Capital Cycle, leaving very little working capital free to invest in growing the business. One of the biggest advantages of using structured trade finance products is that financing available through this method is off-balance sheet financing thus enhancing the importers capacity to avail higher credit and at flexible terms.

In today’s article we would be discussing four broad products for Importers:  

Option 1

One of the simplest solution is using “Import Finance (advance payment)”. The importers can avail funding against the Bill of Lading. In this customized financing option the foreign entity supplying goods/material to the Indian Importer gets payment on the same day on which the entity provides Bill of Lading to the Fund, thus the working capital cycle is shortened significantly.

In case the importer is a value add manufacturer who imports raw material or semi-finished goods from overseas markets and then exports the goods after value addition then the manufacturer can avail Advance Permanent solution while importing the raw material and use Export factoring at the time of export. In fact in many cases the Funds can be advanced up-front against a specific timeline for the production and shipment of finished goods agreed by manufacturer in India and it’s importer.

Benefits for Importer


- Provides loan to fund the manufacturer’s purchase of raw materials (import) to fulfil export orde

- It promotes a healthy supply chain by strengthening the importer’s finances

- Flexible loan repayment options – in exchange for goods on arrival at destination, or on extended credit post arrival (subject to credit evaluation)

- No need for opening of LCs or Buyer’s Credit and seller in foreign country can get payment quickly. This can in turn be sued by the importer to bargain for better pricing (discounts) from the foreign company.

Option 2

The importers can also avail “In-transit financing”, where the foreign supplier delivers the goods to the Funds to be shipped onwards to you (importer) in it’s home country. The Foreign supplier gets payment from the “Fund” on your behalf on the same day the foreign entity hands over the goods for further shipment to the importer in India.

The importer on the other hand will have to pay to the “Fund” only before taking delivery of these goods in India, further at times it is possible to take delivery in parts. The biggest advantage is using this trade finance option the importer can significantly reduce the number of days for which fund is required before he gets the goods/raw material in it’s hand.

In other words the importer is able to avail financing for “In-Transit” goods by using In-Transit goods as collateral, which is normally very difficult when getting financing through traditional methods.

Benefits

- Importer can borrow against his inventory “on the water” unlike with conventional method of financing

Improves Importer’s working capital efficiency

- Increases liquidity of the importers

- Facilitates a price discount from your exporter for early payment

- Potential to extend your credit beyond arrival of goods (subject to credit evaluation)

- Improves your relationship with your exporter through early payment of your invoices when due

- Timely digital release of your goods rather than paper-based lender methods

Option 3 

- One of the big challenges that most of the Importer’s in India face is to get longer credit terms from their overseas suppliers. However, Indian importers can avail this longer term financing called “Importer Credit - Payables Finance”, through specialised Trade Funds in offshore jurisdictions.

- These Trade Funds will pay on behalf of importer to the overseas supplier on shipment and then the Importer can repay to the funds after pre-agreed period. In other words importers are able to get material on credit even in cases where overseas supplier is not in a position or unwilling to sell goods on credit.

Benefits

o    Provides to Importers extended trade credit at reasonable cost to them

o    No need to have “Letter of Credit” and hassles associated with it

o    Optimises your working capital by extending your “Payables” time period

o    Frees up your existing credit lines for other use

o    Can Qualify as “off balance sheet” funding

o    Can Facilitates importers negotiation for price discounts because of early payment

o    Streamlines and simplifies your physical and financial supply chains

o    Improves your financial metrics by reducing your Days Payable Outstanding

 

Option 4

 

Warehouse Receipt Financing - CMA/CMC Funding is a form of secured funding in which the Fund can extend credit to importers by using securely stored goods as collateral. This method of financing can be beneficial for commodity importers or those manufactures/ traders who are unlikely to utilize or sell the entire imported goods in one shot. They are likely to utilize the imported material in tranches or over a period of time. Warehouse Receipt Financing can be used by the importer by using it’s own warehouse or bonded warehouse owned by third party or fund. If the goods are stored in client’s owned or leased warehouse, then the Fund can provide funding against the warehouse receipt. Any commodity that is actively traded may be financed under WHRF. The Funds insist that these commodity must be stored in an approved storage facility, managed by an independent CMC for & on behalf of the Lenders. The structure necessitates that the CMC that issues the Warehouse Receipts, creates a legally independent storage facility.


Benefits


- Importer can now borrow against their inventory


- Improves importer’s working capital efficiency


- Boosts liquidity


- Facilitates a price discount from exporter for early payment


-Potential to extend your credit beyond arrival of goods


-Improves your relationship with your exporter through early payment of your invoices when due


-Timely digital release of your goods rather than paper-based lender methods


We can help the importers to get customised structured financing solutions based on their requirement and all this can be availed without any need of collateral from the importer.

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Important Message The information contained in this file is provided for informational purposes only, and should not be construed as legal advice on any matter. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this file to the fullest extent permitted by law. Every effort is made to avoid errors. In spite of that, errors and discrepancies may creep in. It is expressly stated that neither Findoc Investmart Private Limited nor any of the contributors of updates will be responsible for any damage to anybody on the basis of this document. Readers are, therefore, requested to cross check with the original sources e.g. Government publications, Orders, Judgments etc., before taking any action or making any decision. These services are being provided through our group companies Findoc Capital Mart Pvt Ltd and Findoc Finvest Private Limited

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