A financial intermediary buys a company’s receivables and lends cash to their firm in the process known as export factoring, which is a type of international factoring. Recourse and non-recourse are the two types of export factoring,

For a number of reasons, export factoring is distinct from a conventional bank loan. First off, it does not appear as debt on a company’s balance sheet, in contrast to bank loans.

Furthermore, due to the fact that export factoring frequently doesn’t require collateral, small and medium-sized enterprises are more likely to be approved for financial service.

Moreover, rather than the borrower’s own financials, the funding through export factoring is dependent on the creditworthiness of the company’s clients.

If you want to use export factoring efficiently, you should search for reliable export factoring companies. Choose the one out of the export factoring companies in India that

provides the best export factoring services. You will surely be able to find a company that provides export factoring facilities of a high standard.

Some of the ways companies can prove beneficial by using export factoring in India are:

Export factoring enables them to provide open account terms, improve their liquidity, and become more competitive. It can also be seen as an alternative to long-term bank financing, export credit insurance, and other high-cost loans.

In export financing, financial lenders sanction funds to the creditworthy exporters against Letters of Credit or non-LC bills like a Document against Acceptance or a Document against Payment. Consequently, exporters can rest assured as they have a reliable solution to their liquidity problem. 

With supply-chain-based short-term financing solutions enjoying growing popularity in recent years, export financing has become a staple of the business sector. Notably, leading FinTech services such as KredX are now providing export financing to exporters.

How does export financing work in India?

Lending institutions provide export finance for exporters as a loan against the products they have already shipped. In India, this credit is provided to the business owners from the date of extending credit after shipment of goods to the realization date of export proceeds. As per the RBI guidelines, this stipulated period of export proceeds realization is 15 months from the export date. 

Notably, export finance for exporters is provided for three different types of exports:

Physical Export: In this instance, the lender provides credit to the actual exporter, who is mentioned by name in the trade documents.

Capital Goods and Project Export: Under this scheme, funds are sanctioned in the name of the foreign importer. Although, the money gets disbursed directly to the domestic exporter. 

Deemed Export: The finance is offered to the supplier of goods and services, which are sent to the designated agencies. 

Importance of Export Finance

Even other than offering an immediate and prompt solution to the budget-crunch issue of the exporters, International trade financing for exporters is immensely important for other aspects of the business too. 

For instance, this model offers a time-efficient option to the exporters regarding converting their accounts receivables to cash. As a result, these exporters get more flexibility in extending grace periods to their overseas buyers. Consequently, these businesses build towards sustainable growth thanks to their improved Customer Lifetime Value. 

Moreover, businesses do not need to risk losing their assets as collateral is not required for this loan. Small-scale businesses in India often struggle to access traditional credit, as the lack of collateral makes lenders deem them high-risk borrowers. Export financing provides the crucial financial assistance needed by exporters ensuring the acquisition of funds without indemnity. 

Which Documents Are Required to Get Export Financing in India?

As evidence of the goods being shipped, one must submit shipping documents like:

Original copy of the Letter of Credit

Import Export Code [IEC] certificate

Bill of lading

Airway bill

Commercial invoice

Packing list

Certificate of origin

Inspection certificate

Insurance certificate

Conclusion

While trading any kind of goods between two different sovereign countries, people have to overcome various challenges. One such challenge that every person faces while trading goods from one particular country to another is the lack of foreign currency.