Export Financing

Export financing, as the name suggests, means financing the exports. It involves financial help/loan for export activities or receiving payments for the sale (exports). It revolves around the company’s credit worthiness. Due to cut throat competition, there is a greater need to finance exports to provide attractive payment policies and modes. Otherwise, the exporter may lose its customers.

Any decision related to export financing is crucial and therefore it is advisable to take into consideration some key determinants. The need for financing is important since it decides its significance in day to day activities of the company and also its sales. Where the funds are used the most must be watched closely so as to make it cost effective and profitable. The duration of the loan depends on how quickly the payment is made and the source of financing. Since every method of export financing has its own costs and benefits, the exporter must weigh both simultaneously to minimize cost and maximize benefit. Higher the risk involved in the transaction, greater is the cost of financing it and therefore, the exporter needs to look out for risk free transactions yet profitable. Decisions related financing also comes to rescue when there are huge amount of commodity to be exported or less working capital available at hand that might affect the day to day functions.

Sources of export financing are many. Any local commercial bank, local Department of Commerce Export Assistance Center, Small Business Administration office, the highly recognized Export-Import Bank and the state export promotion or export finance office. Before choosing the source, the exporter must pay attention to the terms of loan, interest rate, rate of return, risk involved in the transaction, etc. Such decisions are highly crucial and trace the path of success or failure for the company.

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