What is Export Finance?
Export finance is the financing of working capital tied to exports, that exporters avail from financial institutions and finance providers. Export finance helps facilitates the commerce of goods internationally.
Simply put, Export financing is a cash flow solution for exporters. A prototype export business goes like this, The buyer and seller agree on a business, followed by an agreement for payment terms of the cross-border trade.
The seller (exporter) ships the goods overseas while the payment is received at a later stage. Export finance allows the business that sells the product access to working capital before their clients pay for the goods purchased.
This is also known as Trade finance.
How Does Export Finance Work?
The buyer makes a purchase order for the exporter, the seller. The buyer and seller agree on payment terms.
The buyer and seller agree on payment terms; 30, 60, 90 days. (Payment terms are a good negotiation tool in business; where better payment terms give you a better business advantage). The exporter then creates an invoice, and ships the products.
The sales to revenues gap; (the gap between when the products are shipped and payment is collected)
This sales to revenues gap means that even though the exporter already sold and shipped the products, he will not receive the payment until the invoice is due.
This is when Export finance comes to play.
To overcome this cash flow issue, the exporter decides to apply for export financing.
How would this export finance work?
The exporter sends the invoice to an invoice financing service (the financier).
The financier exchanges the invoice with funds. The financier gives the exporter a substantial percentage of the total purchase. The export financing company will receive the payments from the buyer once due.
By doing so, the trade finance company can deduct the administrative fees, control payment flows. This allows the financier to estimate the risk involved in the transaction.
Then, the lending company transfers the remaining balance to the exporter.
How Much Does Export Finance Cost?
Calculating the Export Finance costs is complicated because it takes into account several variables.
Some are quantifiable: easier to compare and contrast. For example, the invoice amount (the contract value), payment terms, just to mention a few.
Other variables examined are more qualitative. They are used to assess the business relationship between exporter and buyer that goes beyond volumes and growth.
Traditional lenders (banks and factoring companies) are not able to finance capital to export activities, for different reasons, especially for mid-sized companies. Their conditions are so stringent, hard to fulfill, and very slow
Thus, most companies do not have access to trade finance products. For example, small companies are less likely to access financing than larger corporates.
Export Finance With Bridger.
In recent years, Fintech companies have accessed the trade finance ecosystem. They can serve customers because of less stringent requirements compared to traditional lenders.
Hence, broadening the credit accessibility to small and medium-size corporates.
Alternative lenders can provide working capital in a shorter time. The onboarding is shorter and the applicant is assessed.
Lastly, alternative lenders exchange all the documents and signatures electronically. Thus, making communication with the parties more efficient and less invasive.
The Pricing is determined by the creditworthiness of the debtor and the length of the commercial relationship.
- We don't require any collateral assets to support your application.
- You decide which of your invoices to finance and when to use our service.
Brought to you by Bridger, a payment and Invoicing financing product for African cross-border businesses.