When it comes to ensuring positive cash flow and seamless business operations for companies involved in trade, especially international trade, there are a number of financial facilities that provide assurance and facilitate transactions.
For businesses that trade internationally, one of the integral facilities is called export finance. As a non-bank yet highly reputable lender and enabler of business growth, the ScotPac team has extensive experience in arranging export finance Australia-wide.
In this article, we’ll introduce you to the fundamental concept of this financial instrument.
Export Finance: An introduction
Export finance is a solution that ensures the seamless transactions between two parties engaging in international transactions. By facilitating the transaction smoothly, both companies will benefit from a cash flow solution.
In international trade, an importer will typically place a purchase order with an exporter located in another country. The exporter will ship the goods ordered and issue an invoice. The importer receiving the invoice is being asked to settle the account but has yet to receive the goods. Respectively, the exporter has shipped the goods but has not yet received payment.
This causes a cash flow issue for both parties due to delay inherent in international trade.
Export finance is a facility that exporters can access in order to ensure that goods are shipped and invoices are settled without either party experiencing disrupted cash flow.
Export finance sits under the umbrella term of trade finance which encompasses both the finance available to exporters and importers.
How does it work?
1. Purchasing
The buyer (importer) will make a purchase order for goods to be shipped from the seller (exporter).
2. Payment Terms
As part of the purchase order, there will be set payment terms for when the invoice needs to be paid. Most commonly, this is between 60 and 90 days.
3. Invoicing
The exporter will issue an invoice for the agreed amount and with the payment terms to the importer.
4. Shipping
Once the invoice is issued, the exporter will send the goods ordered.
5. Invoice Transfer
At this point, the financing company offering export finance steps in. The exporter will transfer the same invoice sent to the importer to the export credit financing company.
6. Advance Payment
The financing company will pay the invoice on behalf of the importer as an advance.
7. Invoice Payment
At this point the importer will pay the amount of the invoice to the financing company.
8. Settlement
The financing company will then transfer the amount owed to the exporter, less fees, of the invoice.
Summary
The financing company acts as the intermediary ensuring the payment is collected from the importer and provided to the exporter. With export finance, the two parties do not directly exchange money.
Benefits of Export Finance
There are numerous benefits to using an export finance facility. Trust is a required component to international transactions and a financing company can offer that level of guarantee and financial assurance to make sure the trade goes ahead.
Trade finance, especially from an entity that isn’t a traditional bank, offers quicker and more reliable access to working capital for the exporter without all of the red tape associated with business loans or other bank-based facilities.
A lower level of risk promotes more international trade and transactions which otherwise may not have been able to go ahead.
Exploring Export Finance with ScotPac
We’ve been working with businesses of all sizes across Australia and New Zealand since 1988. We specialise in tailored working capital solutions to ensure seamless business operations and to help fuel growth.
Along with export finance, our services can help allow you and your business to access tomorrow’s payments today.
Highly capable
The breadth and depth of our financial solutions capability ensures that just about every client that enters our doors is able to access the facilities they need.
We’re a leader in everything from invoice discounting to asset and trade finance. With access to a wide range of products–with even more to come in the near future–there’s no size or level of complexity in a business that we cannot help.
Tech savvy
The ScotPac team is highly proactive in exploring ways to evolve and transform our financial services by using the latest in industry technology. Whether it’s a partner portal or trade ledger, the better our technological systems and roadmap, the quicker and easier it is for you and your business to access the capital you need.
Advocacy work
We’re advocates for small business, especially when it comes to international trade. Our investment in SME Growth Index research and partnerships with various campaigns and the Australian Small Business and Family Enterprise Ombudsman makes our team uniquely suited to provide tailored financial solutions.
Reputable brand
ScotPac is a reputable provider of export credit financing and other facilities in both Australia and New Zealand. Our success stories and case studies from previous and current clients serve as testament to the work we do, the services we offer and the results of our solutions.
Looking for export finance? Contact ScotPac today.
No matter how straightforward or convoluted the trade deal, our specialists can help customise a financial facility, such as export finance, to suit your needs.