International trading is a significant business for any economic ecosystem and it comes with its own risks and rewards. We all know rewards are directly proportional to risks and it is especially true in international trading business. In international trading the risks are significantly higher when a person enters the business without doing proper research and without knowing the nitty-gritty of the trade.
One main risk that an exporter faces is the reception of payment. This is where banks play a role. Banks can alleviate the exporters’ risk to some extent by providing Letter of Credit, term loans, and other financial support. While commercial banks are extremely important in conducing the international businesses to run, EXIM banks offer special services meant for international traders.
EXIM banks extend letter of credit to the importing government and associated banks to the exporters. LoCs are absolutely risk free for the exporter and EXIM bank takes payment from the importer in advance of 10%. The remaining 90% will be taken care by the EXIM bank. Below are some of the benefits that EXIM banks provide:
- Pre-shipment credit- this is provided to companies that require more than six months to send out the goods to their buyers. This credit scheme helps the exporters to mobilise their funds and use them as working capital.
- Delayed payment exports – This scheme is designed especially for the exporters who have to deal with buyers who would need extended time to make payments to their vendors. While that may be their plight, vendors can not survive the economic strain that might put on their business. This is where delayed payment credit comes into play.
- Foreign Investment Finance – this scheme is for export companies who are ready to join hands with foreign companies through mergers and acquisitions.
- Term Loans – EXIM banks provide term loans to export oriented companies that deal with one hundred percent exports, companies in free trade zones and some software companies. EXIM banks will also tie up with international banks from other countries that require your country goods as a good will.
- Export Credit Insurance – EXIM banks will be able to provide export credit for a period of one year based on their relationship with the buyer and if the ECGC is satisfied with their credit rating. You can also avail advances during the post-shipment period and get incentives like duty drawback, cash aid, etc. You can even avail a 75% protection against any losses during the post-shipment period. All you have to do take care of all your compliances and make sure your pay your dues before the 10th of every month and declare all the advances availed.
Conclusion:
There are certainly huge benefits in maintaining your account with an EXIM bank if you are an exporter. Talk to your banker to analyse what kind of schemes you are eligible to obtain and the tenure. Should you have follow up questions, please do reach out to us.
