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Investment | February 17
Alternate methods of financing for Exporters

Exporters/ Importers can avail alternate means of finance through Structured Trade Finance, which in other words is customised trade finance solutions. These customised solutions help to mitigate risks and get access to enhanced financing facilities. In this article we would be discussing few of the structured trade finance options for exporters and how they can benefit from these financing options.  

 One of the biggest complaint we often hear from Exporters is that there is not enough credit available and the collateral requirement for financing export shipments is high because of which there expansion plans and profitability is severely impacted. One of the options available to exporters is to use “Pre-Shipment Export Financing” through AIF or Trade Finance Funds. These specialised funds provide funding to you (or directly to your vendor) to purchase finished goods or raw materials, and fulfil verified orders from overseas importers.

*Pre-shipment Export Finance is available only with In-transit export finance or via Importer Credit facility. It is subject to regulatory permissibility in country of exporter.

Benefits of Pre-Shipment Export Financing

  • Financing upto 80% of your purchases
  • Improves cash flow forecasting
  • Boosts your liquidity to source and pay for goods
  • Potential to increase your export sales growth
  • Third country sourcing against your overseas purchase orders can be eligible
  • No cash deposits or LCs required from your importer
  • Option to extend further credit to your importer after goods are delivered, subject to creditworthiness

“In-Transit Export Finance” is another option for exporters for getting funding, in this financing option the exporters can avail credit facilities for exporting of your goods, while your goods are in Transit or in other words in between port of export and port of import.  In this method of funding the exporters are eligible for getting funding during the ocean transit period, where in-transit inventory is often treated by lenders as ineligible collateral.

 Benefits of In-Transit Export Finance 

  • Additional working capital
  • Boosts your competitiveness by allowing your importer to pay on/after arrival, rather than at shipment
  • Gives you a better scope for negotiation with the importer
  • Accelerates funding against receipt of cargo by XYZ at Custom depots
  • Improves cash flow forecasting

The third option is factoring, where an exporter can get working capital financing of upto 80% of invoice value. The biggest advantage of this method of financing is that one it on a non-recoursable basis and second one can get 80% payment immediately. Another advantage is that by availing this financing facility the exporter can insulate itself against the overseas importer’s financial inability to pay (e.g. insolvency and protracted non-payment for undisputed invoices).

Benefits of Export financing (non-recourse)

  • Protects against your importer’s financial inability to pay
  • Saves your time and resources to collect invoices
  • Improves your financial metrics, such as days sales outstanding
  • Accelerates your cash flow
  • Additional source of working capital
  • Streamlines your physical and financial supply chains
  • Off balance-sheet finance as it may fulfill "True Sale" criterion

*Clients are requested to be advised by their auditors

Author: Shammi Khanna, Akhil Jain   

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