Export Finance translates as export financing. It is a set of mechanisms designed to provide financial solutions to foreign trade operations.
Within the line of Export finance, when the sale is based on a medium and long-term contract, there are specific models of international financing for companies, which present a series of advantages for both the exporter and the importer.
Next, we show you its operation and benefits.
What is Export Finance?
Export Finance is defined as a series of financing mechanisms designed for foreign trade operations that resolve the treasury imbalance that the seller may suffer.
Although there are various types of international financing for companies (such as credit policies, forfaiting, discount bills, factoring, etc.), all pursue a common objective: to advance the funds to the exporter.
However, when the object of the commercial operation is durable goods, capital goods, "turnkey" projects, etc., it is necessary to opt for a means of financing exports in the medium and long term.
In these situations, there is a financing model in which the importer is granted a guaranteed loan contract.
We are referring to the Buyer Credit, although we can also find another means of financing in the medium and long term, called Supplier Credit.
These medium and long-term export credits are instrumented with the intervention of an Export Credit Agency (ECA) and it is usually necessary to cover commercial risks through an export credit insurance policy.
In Spain, the ECA is the Spanish Export Insurance Company (CESCE). It is a state-owned company for the most part. Its mission is to provide solutions for the management of commercial export credit.
For your request it is necessary that there is an international sales agreement in which an amount and payment term are established.
What is Buyer's Credit?
The main characteristic of this modality, as its name indicates, is that the importer is the signatory of the credit agreement.
- The conditions of the operation are determined by the OECD Consensus. With which, the foreign buyer has access to financing under preferential conditions.
- As a general rule, the Buyer Credit allows financing up to 85% of the amount reflected in the contract. The repayment period usually ranges from 2 to 10 years.
- These export credits also have multiple advantages for the seller. The first of these is determined by the possibility of maintaining a competitive offer without suffering tensions in their cash flows.
- By considering an international operation that includes financial facilities, the negotiating position is strengthened and the brand image improved.
- At the same time, the credit risk is eliminated: the exporter will receive the payment according to the terms agreed in the contract.
- On some occasions, a "pre-financing" is requested in order to obtain sufficient funds that allow the exporter to manufacture and ship the merchandise.
What is Supplier Credit?
The Supplier Credit, for its part, is based on a non-recourse discount granted to the exporter.
- The Supplier Credit, for its part, is based on a non-recourse discount granted to the exporter.
- Thanks to this type of financing, sales continue to be collected in cash and commercial risk (including exchange rate and interest rate) is eliminated.
In short, the Supplier Credit, like the Buyer Credit, are medium and long-term Export Finance operations designed to achieve greater flexibility in negotiations with customers; as well as a greater capacity to become competitive in foreign markets.
If as an exporter you decide on an alternative financing solution, Alter Finance provides all types of international financing for companies, including export finance, export leasing, export factoring, forfaiting of invoices.
If you want to know more about our services, contact us. We will guide you through the Export finance process and we will find a solution to collect your export invoices.