Export financing is a cash flow solution for exporters. Export Finance facilitates the commerce of goods internationally.

The seller agrees on the payment terms of the cross border buyer. Thus, there is a cash flow issue. The supplier ships the goods oversea while the payment will be received at a later stage.

Export finance allows the businesses that sell products to another country to get access to working capital before their clients pay for the products purchased.

This process is also called invoice factoring or simply invoice financing.

How does export finance work?

The client makes a purchase order from the exporter. Then, the buyer and the seller agree on payment terms. The export finance payment terms are usually between 60 to 90 days. However, the payment terms can be as short as 30 days or as long as 120 days.

Afterwards, the exporter bills the client allowing them to pay for the goods at the agreed date. Then the exporter ships the goods sold. It means that even though the exporter already made a sale and shipped the products, they will not receive the payment until the invoice is due. At this point, export finance comes to play.

To overcome this cash flow issue, the exporter decides to try export financing.

Firstly, the exporter transfers the invoice to an export finance service company such as Velotrade. The export finance provider exchanges the invoice with funds. The financier gives the supplier a substantial percentage of the total purchase. The export financing company will collect the payments once due.

The importer is responsible for paying the lending company directly instead of the exporter. By doing so, the trade finance company will be able to deduct the administrative fees. Then, the lending company will transfer the remaining balance to the exporter.

How much does Export Finance cost?

Calculating the Export Finance costs is complicated because it takes into account many variables.

Some variables are quantifiable, such as the invoice amount (the contract value) and the payment terms. Incoterms, the value of the goods and other variables are also considered.

Other variables are qualitative, such as the relationship between the exporter and the buyer.

Export credit agencies can become helpful when doing the Credit checks, due diligence and risk assessment. They provide detailed information on a case by case examination. Thus, allowing the export financing service provider to check the creditworthiness of the importer and exporter. Therefore, having a better assessment of the risks involved. So, the lending company can provide better rates.

Credit Insurance companies are becoming more and more reluctant to provide coverage for export finance products. For this reason, traditional lenders are not able to finance capital to export activities. Thus, some companies do not have access to trade finance products.

What companies provide export finance products?

Traditional lenders and alternative financing companies can provide export finance solutions. They differ in a few aspects:

Export finance with traditional lenders

Usually, their requirements are a bit more stringent than alternative lenders. The onboarding time for export finance is long and tedious. It would take up to 3 months to cover the bureaucratic aspect of it. Banks usually run a thorough and lengthy due diligence. Moreover, all the documents are still exchanged in paper format. Hence, the delays in the onboarding.

Nowadays, Credit Insurance companies are more reluctant to provide coverage for export finance. For this reason, traditional lenders are not able to finance capital to some export activities. Thus, SME companies do not have access to trade finance products.

For these reasons, multi-national companies like Samsung and Coca-Cola can apply for Export Finance. HSBC export finance Hong Kong can handle to onboard such companies because their volumes are large. 

Export financing with an alternative financier

In recent years, FinTech companies have accessed the trade finance ecosystem. They joined the big banks and traditional lenders, competing down to their “Tech” core of the business. 

Alternative funding companies demand less stringent requirements compared to traditional lenders. Hence, broadening the credit accessibility to small and medium size corporates. 

Alternative lenders can provide working capital in a shorter time. The onboarding usually takes only a few weeks. During this time, the credit team assesses the case of the applicant.

Once the onboarding is completed, the applicant can receive a more detailed price and can access funds.

Lastly, alternative lenders exchange all the documents and signatures electronically. Thus, making communication with the parties more efficient and less invasive. 

Export finance with Velotrade

Velotrade provides invoice factoring services for a wide range of businesses, including exporters. Export finance is one of the products used in trade finance to import & export activities. 

When providing you with a quotation, we consider the creditworthiness of the debtor. Our pricing also reflects the length of the commercial relationship. You can use Velotrade’s factoring calculator to get an idea of how payments and fees work.

Also, Velotrade does not lock businesses into long-term contracts. Meaning the client gets to decide how many invoices wants to sell. 

We do not require collateral assets to support your application. Companies don’t need to own any high value assets to attain funding! Velotrade offers flexibility that allows clients to fund only the invoices they want. 

If you want to know more about our services, contact us, and we’ll guide you through the process of export financing and invoice factoring.