International Trade Resources Podcast Options to Finance Exports
Today on the International Trade Resources Podcast, our host Kim Kirkendall is with Emilio Estevez to discuss trade financing exports. He is currently an account executive with the North American team at Modifi and has experience in a variety of different companies in financial services.
We begin the episode talking about one of the most common ways to finance exports - a Letter of Credit, or L/C. It’s a guarantee from the bank that they are providing to both the seller and buyer. A guarantee that the buyer will pay a certain amount at a specific time. When you’re dealing with different countries and laws you might not be familiar with, that Letter of Credit provides security. You are also able to customize the letter to fit the transaction. Having everything laid out, can also make things very rigid and difficult to change. Another downside is that the funds must be available in order for the bank to provide the L/C (in your account, etc). Kim and Emilio discuss the details of L/C’s to start the conversation.
Next Emilio mentions other options, including common term loans and Lines of Credits, which also use collateral owned or owed to the borrower. There are challenges to using these loans for exports, one of which is because the banks think foreign buyers are more risky. However many companies don’t want to use cash flow to finance orders, so if the company has a heavy balance of domestic customers to balance that risk, these options allow for more flexibility. Emilio and Kim discuss these in more detail in the podcast.
Another option is supply chain finance programs. These give buyers a way to get paid now, but allow their customers even 90-100 day payment terms. Factoring is common for domestic orders and collections, in part because the service provider can qualify your customer more easily. However many people don’t realize it’s available for exports as well.
One of the other benefits Emilio mentions is that as a seller, it’s hard for YOU to qualify your international customers in general, not only for payment. That’s part of the risk the factoring service takes on. Kim and Emilio talk about the challenges of finding company and credit information on foreign customers in some countries. (hint: listen to our earlier podcast on international trade data for customers)
In summary Emilio notes that there’s two main counterparts to international trade: trust (who is the counterparty, will they get the product you need, and will you get paid) and time (when you get paid). In trade finance, these are addressed to make sure needs and expectations are adequately met. Learn more about the ins and outs of trade finance with Emilio now!
Things you’ll learn
- The different options for financing exports
- The pros and cons of each
- An export financing option many companies don’t know exists.
Episode Sponsors:
Modifi
www.modifi.com
Business Payments for Global Commerce
With MODIFI, Sellers get paid instantly, while their Buyers have the option to pay later. Flexibly. Digitally. All over the globe.
Acclime China
https://china.acclime.com/ Corporate Services and full Accounting/CPA/Tax for China.
Website: www.intltraderesources.com
Email: intltradepodcast@gmail.com
Disclaimer: The content of this podcast is for informational purposes only and does not constitute legal or commercial advice. We provide no guarantee for the accuracy of the information provided. Reproduction or transmission of this podcast is strictly prohibited.