A key problem all exporters face is cashflow - you need to offer credit to win customers, but you also need cash to finance growth.
If you are exporting to a country outside the European Union (EU) and are unsure of the risks involved, you can find a list of country updates via the Overseas Security Information for Business page on the UK Trade & Investment website (registration required) (link is external).
There are a number of short-term finance options, which smaller exporters will need to access via their bank or a specialist insurance broker. As with any insurance policy - eg premises or employer's liability, you should get several quotations before choosing an insurer or a policy. Banks may offer a trade finance package, including cargo insurance.
In the first instance, you will have to decide whether to insure each order, or each part consignment as you dispatch it. once you have more of an idea of your export turnover, you should consider negotiating a policy to cover your annual export turnover. Any premium will factor in whether you are exporting to one or several countries, the level of risk of each, including currency fluctuations and political unrest, the amount of time between your issuing an invoice and potentially receiving payment, as well as the level of risk associated with your sector and your buyers.
documentary credit (DC)
DC (commonly known in many countries as a Letter of Credit) is a fixed assurance from the buyer's bank in the buyer's country. It is issued on behalf of the buyer to say that payment will be made for the goods or services supplied by your business, providing you comply with all terms and conditions established by the credit.
If it is a cash contract, the DC terms will provide for payment immediately upon presentation of conforming documents to the issuing bank - ie before goods are released to the customer. Until you are certain of a new customer's credit worthiness, it is best to aim for such payment terms.
If you have offered credit, the DC terms will state when payment is due, reflecting any extended payment terms you have granted. Your bank may be prepared to provide a short-term loan, for a percentage of the DC, prior to shipment to cover the temporary shortfall. They will then collect from the proceeds of the subsequent presentation of the DC.
For more information, see our guide on letters of credit.
Factoring
A factor enables you to receive cash within a few days of invoicing, by taking on the ongoing responsibility for collecting your short-term debt. In some cases the factor will also take on a percentage of the non-payment risk. This is called non-recourse factoring and means the factoring company won't come back to you if the payer defaults.
You can learn more about this type of financing in our guide on factoring and invoice discounting: the basics.
Your bank can advise you on factoring. Find factoring information on the Asset based Finance Association (ABFA) website (link is external) or view a presentation on what invoice finance is and how it works on the ABFA website (link is external).
Forfaiting
Forfaiting enables exporters to convert a credit sale into a cash sale. However, this is for larger projects and medium- to long-term financing.
For more information on forfaiting speak to the export finance team at Invest NI.
Credit insurance facilities
As an exporter you can also raise finance by assigning your credit-insured invoices to banks. In return the bank will offer up to 100 per cent of the insured debt as a loan. Ask your bank whether they offer this kind of support, or find out about finance available on the ABFA website (link is external).
See our guide on getting paid when selling overseas.
SMEs and export financing
If you are having problems securing finance or insurance in support of UK exports, then government assistance might be available through UK Export Finance.
UK Export Finance is the UK's official export credit agency. UK Export Finance works with exporters, project sponsors, banks and buyers to provides services to UK businesses by:
insuring UK exporters against non-payment by their overseas buyers - ie buyers in third countries, not in any EU country
helping overseas buyers to purchase goods and/or services from UK exporters by guaranteeing bank loans or contract bonds
insuring UK investors in overseas markets against political risks
The amount and terms of support available depend on the risk involved. You can download a quick guide to UK Export Finance from the UK Export Finance website (PDF, 148K) (link is external).
You can also find quick guides to each of the UK Export Finance products and services on the UK Export Finance website (link is external).
Small and medium-sized enterprises can find it more difficult to access finance as thresholds may apply for certain types of policy. If your export turnover is below that eligible for a UK Export Finance policy, the Factoring and Commercial Finance Industry may be able to offer you an insurance policy. These policies typically allow you to secure your financing by your underlying receivables or other assets and not on the balance sheet. The Asset based Finance Association (ABFA) is the UK member of the organisation. Search for an ABFA member on the ABFA website (link is external).
