Export Financing

Export Financing

Export Financing:

Like every other business entity, exporters depend heavily on capital to maintain their production and every day operational activities. However, exporters may sometimes find it challenging to sustain their business activities due to the lack of working capital. In such a situation, they may often find export financing as a suitable financing solution. Read more below

What to expect...

1. What is Export Financing?

2. Why Should One Choose Export Financing?

3. How Does Export Financing Work?

4. Types of Export Financing

5. FAQs

What Is Export Financing?

Export finance / trade finance helps to cover the immediate expenses and allows providing competitive terms of payment. Export finance also helps to mitigate some financial risk involved with international trade.

Nevertheless, export financing service functions as a reliable source of cash flow and helps to keep operations active. It must be noted that the purpose of availing this loan may arise due to several requirements that may occur throughout the working capital stages.

Typically, banking and non-banking institutions and foreign-trade based lending institutions can provide export finance to exporters. For example, in Nigeria institutions like Nigeria Import - Export bank, developmental banks like DBI and State Finance Corporations serve as sources of export financing.

Why Should One Choose Export Financing?

Typically, exporters can opt for export financing in Nigeria  at various stages of their business cycle to meet the requirements. Most businesses resort to this financing option during the pre-shipment and post-shipment phases.

Also, this funding option proves useful in case of suspension of export subsidies and collection of invoices throughout the working capital cycle. In general, businesses opt for export finance for these following reasons –

  • To start a new export-based business
  • For business expansion
  • To meet the working capital requirement
  • To keep production undisturbed

How Does Export Financing Work?

The fundamental functioning of export finance is similar to invoice factoring. Under the funding option, exporters can raise capital against the value of their outstanding bills.

In this asset-based financing, the invoices held by a foreign debtor are treated as a security to avail a cash advance.

The pointers mentioned below highlight how this financing works –

  • A customer or importer purchases goods from an exporter.
  • The exporter then raises an invoice from the importer and allows the customer to pay for the item on receipt and ships the goods.
  • To keep the cash flowing, exporters sell the invoice to a financial institution in exchange for a significant share of the invoice value.
  • The financial institution takes over the responsibility to collect payment from the customer on the due date.
  • Once payment is collected, the remaining invoice amount is transferred to the exporter after deducting a nominal fee.

Types of Export Financing:

There are 5 major types of export financing –

Pre-Shipment Export Finance

This type of finance is accessed when an exporter requires funds before goods are shipped. Typically, the fund availed is used to purchase and process raw materials, packaging finished product, etc. The best sources of pre-shipment export finance include -

  • Packaging credit
  • Business loan

Post-Shipment Export Finance

Once the products are shipped, and an invoice is raised, sellers have to wait until the products reach the buyers to receive payment. Typically, the gap between shipment and receipt of payment ranges between 1 month and 3 months. Sellers can cater to their working capital needs through post-shipment finance via these sources –

  • Invoice discounting
  • Invoice factoring

At Bridger, you can easily raise capital with the help of your company’s outstanding invoices and keep the cash flow uninterrupted. We provide quick access to working capital within 24-72 hours* so that you maintain the required cash flow at all times.

Export Finance Against Collection Of Bills

In a situation where goods are exported to different countries, exporters can avail credit from banking institutions against the bills sent for collection. These financial institutions factor in Free on Board (FOB) invoice instead of CIF invoice to finance the export bills in question.

It must be noted that in case of non-payment, the guaranteeing company will have to compensate a minimum of 80% of the default amount.

Deferred Export Finance

There are 2 main types of deferred export finance, namely –

  • Buyer’s finance
  • Supplier’s finance

Export Finance Against Allowances And Subsidies

The government provides subsidies to exporters in order to encourage international trade. Some examples of such grants include – cash compensatory to control an increase in transport cost, and labour wage and duty drawbacks to increase the flow of export.

Depending on one’s need and long-term export strategy, businesses involved in international trade should select a suitable export financing option.

You can fulfill your working capital requirements by simply completing an application process online.

As Nigeria ’s leading integrated cash flow solutions provider, Bridger helps businesses to raise working capital in any business cycle via invoice discounting. Our invoice discounting platform provides quick access to funding to help fill the gap between the transmission of export items and receiving payment for the same successfully. Reach out to us for quality cash flow solutions in minimum time.

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