Question

Your employer exported goods to India using documentary collection payment method. However, he is short of cash and his bank won’t lend him any more money.

(a) List 2 (two) examples of other finance services that could be considered to assist to generate quick cash flow against your invoice.

(b) How would that affect your overall (landed) costs?

Answer 1

Answer(a): There are two sources of export finance-

(1): Export financing by Government and ECGC- Government gives subsidy to exporters, they can sell the goods at reduced price to importer. Allowances are given for increasing the export. Government also provides finance assistance.

Export credit guarantee corporation (ECGC) is there for you, it provides finance to exporters, in case of default, guaranteeing company indemnifies atleast 80% of the defaulted amount.

(2): Other banks and non banking finance companies- If your bank is not providing enough finance then you can go for other banks that provide export financing. Export-Import bank provides buyer's credit, line of credit, project based financing etc.

Non banking Financial institutions also provide export financing in the form of bill discounting, factoring, working capital loan, line of credit and buyer loan.