A key problem all exporters face is cashflow - you need to offer credit to win customers, but you also need cash to finance growth.
If you are exporting to a country outside the European Union (EU) and are unsure of the risks involved - GOV.UK provides overseas business risk information.
There are a number of short-term finance options, which smaller exporters will need to access via their bank or a specialist insurance broker.
As with any insurance policy, you should get several quotations before choosing an insurer or a policy. Banks may offer a trade finance package, including cargo insurance.
In the first instance, you will have to decide whether to insure each order, or each part consignment as you dispatch it.
Letters of credit
A letter of credit is a fixed assurance from the buyer's bank in the buyer's country. It is issued on behalf of the buyer to say that payment will be made for the goods or services supplied by your business, providing you comply with all terms and conditions established by the credit.
- If it is a cash contract, the letter of credit terms will provide for payment immediately upon presentation of conforming documents to the issuing bank - ie before goods are released to the customer. Until you are certain of a new customer's credit worthiness, it is best to aim for such payment terms.
- If you have offered credit, the letter of credit terms will state when payment is due, reflecting any extended payment terms you have granted. Your bank may be prepared to provide a short-term loan, for a percentage of the letter of credit, prior to shipment to cover the temporary shortfall. They will then collect from the proceeds of the subsequent presentation of the letter of credit.
See letters of credit.
A factor enables you to receive cash within a few days of invoicing, by taking on the ongoing responsibility for collecting your short-term debt.
In some cases the factor will also take on a percentage of the non-payment risk. This is called non-recourse factoring and means the factoring company won't come back to you if the payer defaults.
Forfaiting enables exporters to convert a credit sale into a cash sale. However, this is for larger projects and medium- to long-term financing.
Credit insurance facilities
As an exporter you can also raise finance by assigning your credit-insured invoices to banks. In return the bank will offer up to 100 per cent of the insured debt as a loan.
SMEs and export financing
If you are having problems securing finance or insurance in support of UK exports, then government assistance might be available through UK Export Finance.
UK Export Finance is the UK's official export credit agency. UK Export Finance works with exporters, project sponsors, banks and buyers to provides services to UK businesses by:
- insuring UK exporters against non-payment by their overseas buyers - ie buyers in third countries, not in any EU country
- helping overseas buyers to purchase goods and/or services from UK exporters by guaranteeing bank loans or contract bonds
- insuring UK investors in overseas markets against political risks