Within foreign trade operations, the machinery export It is a segment with potential. However, in addition to knowing the requirements to carry out this type of operations, it is necessary understand business financing options to take advantage of all available opportunities.
For this reason, below we show you the keys and financing instruments in international machinery trade.
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Financing options for machinery export projects
There are different mechanisms for financing foreign trade operations, depending on the objectives, circumstances and ability to access credit.
Export credits
It is a powerful financial tool used in exports of agricultural and industrial machinery, since it is designed for high-value products and services. In addition, it is usually useful when dealing with operations with countries in which there is a certain degree of political or any other risk, including currency risk.
It basically consists of the supplier credit and buyer credit, to formalize both types of export credit it is necessary to have the intervention of a Export Credit Agency (ECA). Consequently, the main requirement for a financial institution to manage the operation is that the application for the credit policy be approved.
It is the importer who obtains financing for the purchase, to allow cash collection. However, also the risk of non-payment is covered, along with other risks.
In other words, in addition to providing monetary resources, it incorporates a machinery export credit insurance. Furthermore, the credits are based on the guarantee provided by export credit insurance.
It is the means of financing that allows expand customer base. It also has the advantage of improving the company's reputation on a global level.
forfaiting
He forfaiting represents a medium/long-term financing means and consists of a discount on internationally accepted exchange documents (mainly bills and promissory notes).
The exporter sells payment documents to a financial institution (forfaiter) with an agreed rate, which advances payment without recourse. In other words, the risks of non-payment are assumed by the forfeiter. This is one of the main advantages of export forfaiting.
In addition to improving the exporter's balance sheet, it facilitates exact knowledge of all financial expenses. It's a medium Fast and easy which provides maximum liquidity. On the other hand, a risk analysis of the buyer and guarantor is carried out.
export leasing
In this case, The sale is made to a leasing company, which acquires the property and proceeds to lease it with an option to purchase for the importer. This is another useful means of financing for this type of operations, since it is designed for medium and long-term assets (with a useful life of more than 2 years).
The lessee is obliged to pay the corresponding fees and maintain the machinery being exported. At the end of the agreed period, you can opt for stay with the good paying a differential fee that usually coincides with the residual value.
In it export leasing, all the advantages that the importer obtains are indirect benefits for the exporter, since he obtains launch a more competitive offerto.
Export factoring
He international factoring consists of a service advance accounts receivable. In other words, an advance on invoices.
Therefore, it is an option that is halfway between a financial instrument and a collection mechanism.
It is usually a recommended alternative when it comes to regular customers, repetitive operations and payable in the short term (for example, the export of machinery with payment in installments). In this aspect It differs from the export forfaiting.
Its operation is simple, a financial company grants you a discount line that you will have available for anticipate customer invoices. This way, you get immediate financing.
In addition, the entity itself is also responsible for the payment management, which represents a simplification in operations and savings in fixed costs.
It also represents a good option for increase sales volume, since the importer does not need to provide a letter of credit or any other document.
You can hire a factoring with recourse or without recourse, depending on the risk coverage needs that your company needs. The factoring entity itself is responsible for determining the payment capacity of your clients. Therefore, it also carries out commercial research to determine the risk of non-payment.
Conclusions
As you have seen, there are different alternatives for financing machinery export projects. Sometimes it can be complex to determine which one is most appropriate to meet the needs of the company.
It is important to analyze the offers, the requirements and the financial situation of the company to design a international financing strategy appropriate. Can consult with Alter Finance and we will guide you throughout the process to find the right solution.