In this post we expose the available foreign trade financing methods and solutions.
Because we find ourselves in a globalized environment loaded with competitive forces, internationalization becomes a real need and not an adventure.
In this context, a good business financing system allows the correct development of penetration, consolidation and growth strategies in international markets.
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International funding sources
The sources of international financing are a heterogeneous group of solutions whose purpose is to obtain liquidity for the proper development of business activities. Without liquidity it is difficult to hire suppliers or improve processes.
They can be classified into two large groups:
- international financing to short term: As a general rule, it is used when the collection is going to occur in a maximum period of 12 months.
- international financing to long term: when payment terms are longer, for example for purchases of capital goods or industrial facilities, there are other adapted solutions. The most common are based on a loan with official support.
Given that foreign trade operations can be of a diverse nature, with different conditions and between different countries subject to their own policies, regulations and currencies, there is a wide range of financing formulas in foreign trade, both in the short and medium term. long term.
The choice between the different sources of international financing depends on factors such as the security, term, currency, complexity of the process, international payment methods agreed or the frequency of commercial relations between the parties.
Short-term foreign trade financing
Naturally, the exporter You have basic financial needs derived from your activity. This agent has the ability to request credit through an advance of invoices, remittances or another credit instrument (payable at short notice). In this sense, we can distinguish two types of export financing:
- pre-financing: when funds are advanced before or during the manufacture of the product.
- post-financing: for operations that have already been executed.
In addition to resorting to credit, there are other formulas for the short term that present financial advantages.
Some of them can be considered as forms of payment in international trade, but they are characterized by the fact that they incorporate a financing system for the business (advance funds from international exports).
- Export forfaiting: It is a hybrid between international collection methods and international financing. Due to its characteristics, it can even be used as a financial source in the medium and long term. It consists of a discount at a fixed rate and without recourse to payment instruments. It is a good solution to cover the risk and export goods of high value.
- export factoring: we could rather say that factoring is a set of financial services. It is based on the assignment of the commercial credit of the exporter to another entity. Simplify processes and improve treasury management.
Besides, the importer You also have at your disposal means of short-term international financing, in addition to resorting to credit to get the money:
- Confirming international: Like international factoring, confirming consists of contracting a set of services, but in this case aimed at managing payments to suppliers.
Financing of foreign trade in the medium and long term
In these cases, when it is intended export high value durable goods, the Export Credit system with Official Support is usually used.
These solutions of export finance are carried out with the participation of an Export Credit Agency (ECA) and the conditions are established according to the Consensus of the OECD.
You can request this type of international financing for both the exporter (Supplier Credit) and the importer ➡ (Buyer Credit).
In any case, there is also a mechanism for financing foreign trade through medium and long term ➡ Export Leasing.
Simply, the exporter sells to a leasing company the goods that the importer wants to buy and the leasing company leases those goods to the importer. This mechanism is used for goods with a useful life of more than 2 years.
He Export Leasing allows you to compete internationally and increase your sales and margins; Offering financing to your clients.
Do you need help to export your products?
Now that you know the different sources of foreign trade financing. If as a freelancer or company you export your products abroad, take advantage of the potential of international financing tools that can make the difference between the success or failure of your operations abroad.
At AlterFinance we try to help you reduce risk in the development of your export strategies and we can present you with the financial product that best suits your international project. whatWe talk about your project?.