August 1, 2023

Financing International Transactions and 12 Steps to Exporting Success

While researching material for the previous post on this forum about a publication produced by the Export-Import Bank of the United States (EXIM) that helps empower American small businesses to succeed in global markets, I discovered an infographic that presents three ways to finance international transactions:

Option 1: Traditional Transaction
Exporter sells to buyer and arranges for either cash-in-advance (the safe choice) or open account credit terms, which is an effective sales tool but one that carries some risk.

Option 2: Transaction with a Factor
The Factor buys invoices from the exporter at a fee and pays the exporter immediately. The foreign buyer is instructed to pay the Factor by the due date on the invoice.
  • Step one: Exporter contracts with Factor
  • Step two: Exporter ships to foreign buyer
  • Step three: Factor pays exporter upon shipment
  • Step four: Foreign buyer pays Factor for goods by invoice due date
Pros of this transaction include the elimination of risk of nonpayment by foreign buyer, payment to the exporter is fast, generally fewer than 10 days, and it maximizes cash flow. More costly than export credit insurance and generally applicable for sales with terms of fewer than 90 days are two of the key risks of transaction with a Factor.

Option 3: Export Credit Insurance
The exporter wins sale to foreign buyer by offering open account credit terms. The Exporter uses an Export Credit Insurance (ECI) policy to insure the receivables against nonpayment by the foreign buyer.

With ECI, receivables are covered up to 95% of the invoice amount. Costing pennies on the dollar, ECI is a more affordable. This post that I published in this forum provides a thorough overview of ECI.

Trade Finance Guide

Exporters may also find value in the Trade Finance Guide: A Quick Reference for U.S. Exporters, which is produced by the U.S. Department of Commerce's (DoC) International Trade Administration (ITA) that explains the basics of trade finance so that U.S. companies can evaluate appropriate financing options to ensure they get paid for their sales.

Export Solutions Guide

In addition, trade professionals at the U.S. Commercial Service, part of the ITA, produced the Export Solutions Guide: 12 Steps to Exporting Success, which was developed to assist American exporters create successful international sales strategies. The twelve steps include:
Which resources do you find useful in financing international transactions or achieving exporting success?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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