7 Things about Export and Import Finance You Want to Know

7 Things about Export and Import Finance You Want to Know

27 May 2019 05:45 PM

Interesting Facts on Export and Import Finance

Enterprises who are into the import and export business strive to derive financial flexibility to boost their purchasing power. With efficient export and import financing strategies one can help businesses face its financial challenges and risks and allow businesses to concentrate in their core business operations. Given below are seven interesting facts on export and import finance that you as a trader should definitely know about.

  • Financing is a requirement for most of the traders, be it an exporter or an importer. For a company to grow, funds have to be deployed back into the system to ensure progress of the company. These funds can be sourced through business loans or efficient working capital use. Business loans though easy to source may not be efficient when it comes to rate of loan. That is when the working capital has to be used in such a manner so as to make the most of the funds internally.
  • Exporters need funds to buy raw material, machinery, labour, packaging, shipping amongst other needs. Importer also needs funds for buying machinery, services, goods which needs to be used to manufacture or service their products.
  • Trade finance is a way in which financing can be sourced through export factoring, buyer’s credit, supplier’s credit, export LC discounting. As per RBI guidelines, full overseas trade purchase can be financed from the date of shipment in case of raw material for a period of upto 360 days. But capital expenditure can be financed for upto 3 years. Since financing is done at LIBOR rates, the cost of financing reduces considerably as compared to rupee loans.
  • Supplier’s credit is an effective method and structure of financing imports into India using a usance letter of credit. Importers are provided with funds at LIBOR linked rates by overseas banks and financial institutions which are much more economical as compared to locally available funding.
  • Buyer’s Credit helps the giving extra time to the importer in arranging funds for their imports while it also ensures timely payment to the exporter, thus helping in effective management of funds. The importer’s bank issue a standby letter of credit favoring an overseas lender financing in LIBOR based rates is comparatively cost effective for the importer. The financial institution outside India finances the importer. This is done based on the importer’s bank guarantee.
  • Export factoring is financing of export documents that are sent directly to buyer or sent to the buyer via the banking channels (and are not under a Letter of Credit). Generally funding for upto 80% of the invoice value on a post shipment basis without collateral is done.
  • Export LC discounting is discounting of export bills / invoices under Letter of credit on a post acceptance. Funds are made available to exporter’s bank via banking channels. Advisors source financing from a host of foreign & domestic banks.

Small enterprises which engage in international trade have financial risks of importing or exporting goods and services from a foreign company have to deal with currency fluctuation and are also not sure of the creditworthiness of the foreign partner. Thus trade finance aids in mitigating these risks.

Read more about export exchange rate

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