Export finance

Export finance

Export Finance can be considered as a term for describing the specialist range of finance which focus on the export market. Export financing generally aims for supporting businesses in reaching within an international market efficiently. Once a consignment clears from the domestic customs, there is some specific time period while the commodities are in transit, and are then gets collected by the importer.
Especially for the concern of emerging markets, the ability for extending attractive payment terms for the buyer or importer is often considered as a huge part of winning an order. Export financing helps in maintaining positive cash flow cycle to fulfil the gap between work done and payment received.
Export trade finance helps exporters financially who are willing to sell goods to international buyers. It results in fascinating more customers for the product followed by increased sales of the customers, and more profit from those sales.
 

However, if the buyer is offering conventional repayment terms (usually, within a time period after the goods are received by the buyer), exporters can face lengthy trade cycles and financial uncertainty. So here export invoice finance can be used to advance payment to exporters by a trade financier to ease cash flow pressures. It can be considered as a loan for exporter for accomplishing various tasks involved in the export of goods. Apart from this, there exist various methods of payment in international trade such as letter of credit, cash in advance, documentary collections and open account.

There exist various finance companies which offer financial guarantees and bridge the finance gap from seller to buyer as well as establish trust amongst them. Export finance helps to reduce cash flow problems with payment guarantees from a customer when goods are being exported, advance payments for access to additional working capital and the discounting of customer invoices to avoid payment delays.
Features of export finance
Eligibility: Pre-shipment finance is available to all types of exporters such as:
●    Merchant exporters;
●    Manufacturer exporters;
●    Export and Trading houses:
●    Manufacturers who supply goods to export houses (EH) trading houses (TH) or merchant exporters.
 

 

 

Documentary Evidence: below are the following documents that are required to be submitted by the direct exporter if they wish to avail pre-shipment finance:
=>There should be a confirmed export order/contract and/or
=> Availability of a non-replacing letter of credit which will work in favour of the exporter; or
=> Original cable/fax/telex message that gets exchanged between the exporter and between the buyers.
 

Purpose: Packing credit by the banks are granted only for specific purposes such as purchase, processing, manufacturing or packing of goods that are defined by the Reserve Bank of India. Following are the purposes for which pre-shipment finance is provided:
=>In order to avail raw materials, components, machinery, equipment and technology which are required for export production.
=>It takes measure that the quality of the goods will increase and to confirm the international standards.
=>They also wish to adapt product to the requirements of foreign markets, improve existing products, product addition and product extension.
 

Amount of Finance: Banks have got all the authority to find the amount of pre-shipment finance. The only guideline principle which is important is the concept of Need Based Finance. Banks find out the percentage of margin, depending on factors like:
o    The nature of the following order.
o    The nature of the following commodity.
o    The capability of exporter to bring up the required contribution.