What is Export Finance?
In layman’s terms, export finance is a collection of financial products that are specifically tailored to the export market. Export financing supports businesses that serve an international audience and helps provide assurances over cash flow problems that can arise from complex logistical chains.
Once product shipments have left their country of origin it can take a long time to arrive at their destination, mainly thanks to the transit times and customs clearance. This is particularly prevalent when exporting to emerging markets where extending lucrative payment terms are often key to winning contracts.
Exporters can often run into problems with payment terms that can range between 30 and 120 days. If payments are then late or fail to be made, this can lead to real issues for the exporter that stifles growth and can even lead to insolvency.
How Does UK Export Finance Work?
In a similar vein to factoring, export finance is an agreement that provides a cash advance against the value of unpaid invoices. It falls under the umbrella of asset-based finance and is a very similar product to invoice financing, but export finance is specifically designed for companies working internationally. This means that time delays and other unforeseen circumstances can be factored in.
What Potential Issues Do Exporters Face?
Under normal circumstances, companies that export to different countries cannot charge 100% of their invoices upfront. It would solve many issues if they were able to, but in a highly competitive industry, credit terms that are more attractive to the buyer have become the norm. If you want to win lucrative overseas trade contracts, you have to be able to offer the best credit terms for your buyers.
Whilst this creates potential issues for the exporter, buyers favour arrangements where goods are paid for once they clear customs and have been delivered. This creates a situation where the exporter must send the goods before receiving any payment, leaving them at the mercy of shipping times, customs clearance and any other unforeseen circumstances.
What is Export Factoring?
If you are a small or medium-sized business that exports consumer goods then export factoring could be beneficial to you. It centres around goods being shipped and delivered before the payment is due, usually within a timeframe of 30-90 days.
A factoring company can then buy the international account and its invoices before providing an advance to the exporter. This advance is usually around 80% of the total invoice value and upon payment, the factoring company becomes 100% liable for the account, even if there is non-payment.
Although this can be expensive for smaller businesses, it provides a way for international accounts to be opened with confidence.
How White Oak Can Support Exporters
White Oak offers a wide range of financial packages aimed at both large and small businesses exporting internationally. Our trade finance packages allow for lending of between £5m and £100m with up to 90% advances and between 60 and 180 day debtor terms.
With over 25 years of experience in export finance, White Oak are here to support you and your business by ensuring any cash flow issues are dealt with swiftly. Get in touch with our team of experts for advice today.