Exporters can opt for KredX, India's leading supply chain finance platform, to fulfil the working capital requirements.

What Is Export Financing?

Besides being an effective solution for cash flow, the main objective of export financing is to extend financial support and help businesses deal with transactions in the global market. It is an excellent means to help businesses free their working capital from overseas transactions.

Export financing is a reliable means of accelerating cash flow, which helps businesses keep their day-to-day business operations active. However, one of the biggest threats to international trading that can strain the cash flow of exporters is the payment term. On the other hand, for emerging markets, offering an attractive payment term to importers is significant to winning orders. Hence, relying on export finance will help exporters sail through credit challenges.

Why Should Businesses Opt For Export Financing?

One must opt for export financing in India to meet the working capital requirement. In addition, exporters can resort to this funding option at different stages of their business cycles, like the pre-shipment and post-shipment phases.

Export finance covers exporters' instant expenses and offers competitive payment terms. It helps mitigate most of the financial risks that exporters can face with international trading.

Even buyers can benefit from the easy accessibility of export finance. As exporters can perform under their sales contract, it maximises the exporter's potential to sell more to the buyer. Business bodies opt for export finance to expand their company's horizons, arrange working capital, and commence with new export-oriented businesses. Most importantly, they can utilise this option to keep their productions undisturbed.

Export Financing Process

Export finance is a finance agreement where the fund is advanced against unpaid invoices. The primary process behind export finance is similar to that of invoice factoring. Exporters can raise capital against the outstanding bills' value under this financing option.

Export finance is an asset-based funding option; exporters can avail of a cash advance against the invoice kept as security to foreign debtors. How the export financing works are as follows:

• Firstly a buyer or importer makes a purchase order from an exporter.
• Then an invoice is raised by the exporter, allowing the customer or buyer to pay for the goods and then proceed to the shipment.
• To ensure smooth cash flow, the exporters sell the invoice and get a significant share against the value of the invoice.
• The financial institutions or any foreign trade-based lending institutions to which the exporter has sold the invoice take charge of collecting payment from buyers on the stipulated date.
• After collecting the payment, the residual invoice amount is given to the exporter. However, the financial institution will deduct a nominal fee for this matter.

Advantages Of Export Financing

Export financing proved beneficial to both exporters and overseas customers. The funding option helps exporters in the following ways:

• It assists exporters in achieving a competitive edge by extending adequate credit terms to buyers.
• The funding option can manage the cash flow efficiently based on unpaid invoices.
• Exporters can save time as they rely on administrative resources to collect debts.

Here are the ways by which export finance helps overseas buyers or customers:

• Overseas buyers can reap the benefits of the competitive market price. They do not have to bear any upfront for the goods that arrive at their disposal.
• They can use the option to manage cash flow. Overseas buyers get to explore new market opportunities.

Types Of Export Finance

Here are the different types of export financing:

• Pre-Shipment Export Finance
  In pre-shipment export finance, exporters access the funds under the export finance before the shipment of goods. Exporters can use the fund to purchase raw materials; package finished products. Packing credit and business loans are the ideal sources under the funding option.
• Post-Shipment Export Finance
  As the name suggests, this type of fund is accessed after the shipment of the products. Generally, sellers have to wait for the payment until the product reaches the buyer, which results in a gap between the shipment of goods and payment. In order to mitigate the gap, one can opt for the credit choice. At companies like KredX, exporters can raise capital against the outstanding invoices and mitigate the gap that rises after the shipment.
• Export Finance Against Collections Of Bills
  When goods are exported to various countries, exporters can opt for funds from financial institutions against a collection of bills. Financial institutions can consider the FOB (Free On Board) to fund the export bills.

Export financing boosts cash flow. The mode of finance highlights the export market and supports businesses to establish themselves in the global market. Exporters facing difficulty meeting required working capital can conveniently opt for it from reputed cash flow solutions providers like KredX.