What Is Export Finance and How Does It Help Indian Exporters?

The export process starts with the target country and what you want to sell. Then, it goes on to setting up operations to ensure quality supply, getting orders, transporting the goods to the nearest port or airport, shipping them, billing, and collecting payment. Reviewing the process will help you realize that export finance is the common thread through all these stages.

What is export finance?

Export finance or trade finance solutions are various financing options for exporters. They can support exports in general or relate to a particular stage. For instance, there is finance to help exporters in capital expenditure loans, working capital loans, or pre- and post-shipment finance. The government also has many schemes to support exporters, like Export Promotion Capital Goods (EPCG) or RoDTEP, which provide much relief to exporters.

What are the different types of export finance?

Export finance has diverse forms and covers exporters' many needs. The different types of export finance include:

Pre-shipment finance

This finance option can consist of short—and long-term loans. Long-term loans usually support the exporter in purchasing machinery to produce goods of the right quality without compromising cost or speed.

Short-term or working capital loans are provided to exporters so that they can purchase the required raw materials, enable production, and help with packaging. The packing credit is expressly offered to exporters to allow them to pack the goods and ready them for shipping.

Post-shipment finance

Banks, financial institutions, and even certain government agencies offer loans to exporters once they have shipped the goods but have not received payment from the buyers. Post-shipment finance helps exporters to continue operations and meet the requirements of their next order. These loans can be bill discounting, overdraft facilities against letters of credit, or advances against export receivables.

Supplier’s credit

This is financing provided to the exporter to offer extended and attractive credit to overseas buyers. This kind of financing allows them to keep operations running even before the buyer can make the payment.

Export credit insurance

Though strictly not a loan or financing option, credit insurance covers the exporter if the buyer defaults for various reasons. This cover ensures that the exporter can cover losses when an importer does not pay, delays payments, or makes partial payments.

Factoring and forfaiting

Factoring is when a business sells short-term invoices, collections, or accounts receivables at a discount to obtain short-term finance. Both local and international companies use factoring to access funds. Forfaiting is the sale of export-related receivables backed by bills of exchange or promissory notes from medium—or long-term business transactions. It is used exclusively in global trade for large transactions or capital goods. Forfaiting allows exporters to avail of medium—or long-term funds.

What are the benefits of export finance?

When exporters have the option to avail of export finance options, it benefits them at several levels. These benefits include:

Ensuring exporters can uphold the name of the country by continuing to supply quality goods on time as these loans let them keep their operations running
Export finance helps exporters manage their cash flow better as it provides them with funds to cover immediate expenses
Options like export credit insurance help exporters manage and mitigate their buyer default-related risks
Helps exporters remain competitive in the international market by consistently selling goods of good quality at optimum prices
With export finance, exporters can concentrate on market expansion instead of worrying about funds

Today, Indian exporters are fortunate to have access to export finance options from various banks, financial institutions, and government agencies. They also have many attractive schemes and technology support that enable easier, faster, and more secure operations.

They can approach companies like LeRemitt that offer innovative solutions for various aspects of the export business. Click here to learn more.