HomeFWJ TakeawayWhat is export finance?

Our team of expert banking and finance solicitors have listed the following three key considerations in relation to what is export finance:

  • export finance is finance that helps a business sell goods and services overseas, typically by providing advance or guaranteed payment.
  • trade finance is financial support that typically helps companies to trade internationally to import goods.
  • both export and trade finance can include other types of finance – in particular, asset-based finance techniques such as factoring or invoice discounting can form a part of the finance facility.

When a business is exporting goods it wants to be sure that it can both afford to produce the goods and that they will be paid for when dispatched. Export finance helps mitigate risks such as default or delayed payment and covers the gap between the cost to manufacture and ship goods being incurred, and the time that payment is made for those goods.

Importers face the reverse. Overseas suppliers want to be paid for materials before shipping, so the need arises for finance to fill the gap between importing the materials and the point at which the finished product is sold. That’s where trade finance / export finance comes in.

So what is export finance? Export finance covers a wide range of tools, all used by banks to manage the capital required to allow international trade to take place as easily and securely as possible.

Our experts at Francis Wilks & Jones have listed the traditional export finance tools below to assist our clients with all their queries on what is export finance:

  • bonds and guarantees – if the seller fails to deliver the goods or services as described in the contract, the buyer can ‘call’ the bond or guarantee and thereby receive financial compensation from the seller’s bank. The types of bonds and guarantees include tender guarantees, advance payment guarantees, retention money guarantees, performance guarantees and customs bonds.
  • letters of credit – these are issued by a bank, guaranteeing that the buyer’s payment will be received on time and for the correct amount, assuming the goods (or services) have been supplied as agreed. If the buyer fails to pay any or the entire agreed amount, the buyer can call on the letter of credit to obtain payment, typically from the buyers bank. The sellers bank may also assist by being the holder of the holder of the letter of credit and calling for payment on the letter of credit from the buyers bank once the terms of the letter of credit have been fulfilled.

Francis Wilks & Jones is a leading firm of solicitors who can answer all your queries on what is export finance. We are experts in all matters relating to trade finance, including what is export finance. We can help a company continue to trade with their international partners. Call now to speak to a friendly trade finance adviser.

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