Funding International Trade: Export Finance

If your company is doing business with customers outside of the UK, you might have hit a stumbling block when it comes to funding. Some lenders place restrictions on the level of international sales they will support due to the perceived risk being higher, however, the good news is Ping Finance works with specialists who are comfortable with 100% export.

The whole field of international finance, and more particularly, export finance, is large and sophisticated, which means that it’s vital to get the help you need quickly and from experienced specialists.

For the sake of this article, when we refer to export finance we simply mean invoice finance for international sales.

What is Export Finance?

In case you need to brush up on invoice finance, it’s simply the process of improving your cash flow by getting a specialist to take your invoices and advance a percentage of the outstanding amount. The specialist then either chases the company on your behalf and once your customer has paid, provides the outstanding amount, or allows you to chase your customer and get the money. Whichever you choose, and there are subtle differences offered, you don’t have to wait for your money for 30, 60, or 90 days. There is a fee, but in return, you get the benefit of a far improved cash flow, allowing you to get the money you need to run your business and expand.

It’s worth remembering that with export finance, or invoice finance if you prefer, there are some other factors that any prospective lender will consider – and you should too – they are: the country you will be dealing with, which country’s laws apply to the transaction, your customer relationship, its credit rating, and the paper trail.

Which Countries Are Ok?

Let’s start with the country to which you want to sell. It won’t surprise you that politics plays a key role here and whether we like it, or not, some countries are not seen as good trading partners. They may be on a blacklist or be seen as unreliable. It’s unlikely you’ll be wanting to conduct business with a banned country, but there are many countries that are not banned, but do have reliability issues. So, you need to check and you can do this via the specialist that provides the export finance service. Another good source of information is the UK Government, who through their various departments, can tell you of any problems they have with a trading country.

A country’s jurisdiction is also important. We take our legal system for granted and to a large extent, we understand its strengths and weaknesses, especially if you have to chase a customer for money. But, in another country, it can be completely different and not only that, cost you far more to take legal action, creating numerous paperwork and money problems to get a situation resolved. You should seek advice before entering into a contract that’s subject to another country’s laws.

Know Your Customers

Next up is your customer relationship. How well do you know your customer? How long have you been doing business with them? Do you know of others who trade with them, what’s their opinion? Can you get hold of them on the phone, do they have physical buildings (or just a website) and who are the principle directors? A 30-minute search on the internet would provide you with some of this information, allowing you to gain a valuable impression. The ensuing customer relationship is all important.

Credit ratings are equally, if not more, important. Credit ratings are a good place to start when doing your due diligence, but remember, their accuracy, or indeed availability, might be in question in some countries. Also, with some credit ratings, they might only provide a snapshot at a given time and that things might have changed since they were last calculated. So, proceed with caution here.

Get It in Writing

Finally, we come onto the paper trail, which in an ideal world would consist of emails, contracts, purchase orders, delivery notes and invoices. It’s good practice to document every transaction regardless of the location of your customer. This is important because you might need evidence at a later date regarding what’s been agreed. Because of the difficulty that’s linked with pursuing an unpaid invoice in a foreign country, a lender will want to see that the audit trail is watertight.

As you can see, there are multiple considerations when you’re looking for finance for your exports. What all this means is, when it comes to your decision to source export finance, you need to speak to a specialist like Ping Finance.

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