BY NT CORRESPONDENT.
A new and highly secure way of financing a key projects in the governing is gaining prominence in the region.
Export Credit Agency has been hailed as an additional highly secure source of financing which mitigates commercial unpolitical risks.
Export financing, for example, mitigates commercial and political risks such as non-payments bankruptcy, political instability and currency inconvertibility among others. The method is a very stable and reliable way of financing with lower interests rates.
Among export finance potential advantages to importers are the tenure might be longer and interest rates lower than what is available in the domestic market. The system is very stable and reliable as export finance and dedicated to dealing in challenging risk environment.
As most of the risk taken on by the export finance lender may be able to leverage its counterparty limits available for the importer and therefore be regarded as an additional and secure source of financing.
On the downside, on procurement, export financing must comply with the export -country specifically eligibility criteria and the OECD framework as applicable.
Further, whereas ECAs and banks are well versed in arranging export finance, the process may feel bureaucratic and burdensome. “Successful transactions coordinate among finance, procurement and logistics terms”.
For one to be eligible for export finance, one must have national content criteria and will only support exports that they deem beneficial to their economy and if applicable in accordance with the OECD agreement. The practice, however, vary from country to country.
ECAs finance a portion of home country content plus a varying amount of foreign content of the purchase amount and the project must be deemed to be creating sufficient national value.
The importer must be able to find alternative means of payments for at least 15 percent contract value called the down payment. Buyers can use equity or finance the down payment and local parts of the contract may only be supported up to 30 percent of eligible procurement.
According to UK online publication businessexpert.co.uk said that, In spite of the many attractions of exporting, one of the biggest threats to UK businesses trading internationally is payment terms. In a similar vein to doing business at home, exporters encounter problems with longer payment terms of 30-120 days.
Adding to this, not getting paid on time or at all can put a strain on business cash flow, stifling growth and in some cases leading to insolvency.
“Let’s take a closer look at how export finance can help avoid cash flow problems to help a business thrive. And if you need an immediate export finance quote just fill in our simple form”, States businessexpert.co.uk.
The publication further adds that, Export Finance is the term to describe the specialist range of finance focussed on the export market.
Export financing aims to support businesses reaching an international market. Once a shipment has left domestic customs, there can be a significant time period while the goods are in transit, and are then collected by the importer.
Especially where emerging markets are concerned, the ability to extend attractive payment terms to the importer is often a huge part of winning an order.
Export finance aims to maintain positive cash-flow cycle during the gap.