FAQ on export financing
What are the advantages of working with TraFinScout for export financing?
The TraFinScout portal, which is always free to use, gives exporters quick, easy and digital access to all financial products commonly used in export financing:
Letter of Credit Confirmation
Advice and support are of course always included.
For order volumes of up to 5 million euros, financing can be applied for directly online at TraFinScout.
If the order volumes are larger than 5 million euros, then the digital search via TraFinScout makes it much easier to find a solution.
Why does it make sense as an exporter to finance buyers abroad?
Particularly in developing and emerging countries, it is challenging for your customers to raise the purchase price in foreign currency or to obtain local financing with suitable credit terms.
For the success of your export business the provision of tailored financing concepts is a key success factor.
Product + financing = more turnover
How to secure payments and finance foreign buyers?
In the short-term area, letters of credit and payment guarantees are the most common instruments for hedging payment risks. Letters of credit with a term of payment, so-called "deferred payment letters of credit", have a security function for you and a financing function for your buyers.
Deferred payment letters of credit can be refinanced through the sale of receivables.
It is advisable to have letters of credit (and payment guarantees) confirmed for sales to emerging and developing countries. Confirmations for payment terms above 360 days are often difficult to find.
If your customer requires longer-term financing, then a buyer credit or direct supplier credit, i.e. sales on installments, are often unavoidable. The risks involved for you can be covered by export credit guarantees. For emerging and developing countries, government export credit guarantees are recommended, in Germany the Hermes cover. In EU and other OECD countries, private credit insurers, for example Atradius, Coface, or Euler Hermes (private), are alternatives.
The so-called buyer credit is the best instrument to finance buyers abroad. TraFinScout offers buyer credits starting at 500,000 euros.
Here a bank finances directly your foreign customer and secures this financing with an export credit guarantee (Hermes cover) or credit insurance. This form of financing is linked to your supply transaction. In connection with a Hermes cover, the financing must be structured according to the rules of the so-called OECD consensus.
If a buyer does not want bank financing or if the order is smaller than 500,000 euros, the only option is supplier credit with forfaiting. Forfaiting is available through TraFinScout from 250,000 euros. Ask us about it.
When are which forms of financing suitable?
among others the financing period, the value of the contract, the creditworthiness of the country and the importer.
Please ask, we we would be glad to support.
1 - 3 years
> 3 years
|Letter of Credit (L/C)||***||***|
|Supplier credit (covered / uncovered, with / without forfaiting)||***||***||***|
|"Commercial Loan" or L /C follow-up financing||***||***||*|
|Buyer credit (covered or uncovered)||*||***|
* is conditionally suitable, *** is well suited
What risks must be taken into account when exporting?
language and culture, but also in the legal systems. In general, a distinction can be made between economic and political
- Credit risk of the private debtor or guarantor (e.g. bankruptcy, insolvency proceedings or unsuccessful foreclosure)
- Non-payment, default of payment, cessation of payments
- Purchasing risk
- FX risk
- Non-payment by public debtors or guarantors
- Impossibility of payment by private debtors due to:
- Legislative or official measures
- warlike events and unrest
- government bans
- Conversion and transfer prohibitions
- Moratoria, embargoes, expropriations
You manage these risks by structuring your delivery and payment conditions. Prepayment would of course be ideal, but is unfortunately less and less enforceable. But you can also insure the risks
with various bank products, the export credit guarantees of the Federal Government (Hermes covers) and export credit insurances of private providers for payment terms or supplier credits.
What are letters of credit good for?
Letter of Credit
In the context of export financing, a letter of credit is an agency agreement with the obligation of a bank
to make payment to the exporter within a certain period of time in accordance with the
instructions of the importer on presentation of certain documents. An irrevocable letter of credit can take
a. non-confirmed letter of credit
Advantages for you as an exporter
- With the letter of credit, you have a payment claim against the foreign bank and no longer against the importer. This means that even if the importer cannot or does not want to pay, you get your money from the bank abroad. At least if it can, wants and is allowed to pay. You retain the credit risk of the foreign bank and the political risks of the importing country. These do not apply to the confirmed letter of credit:
b. confirmed letter of credit
Advantages for you as an exporter
- Maximum of security
- You have a payment claim against a bank in Germany or Europe that is approved by the European Banking Supervision Authority.
- No political risk
- The confirmation causes additional costs
What is a buyer credit?
Finance or buyer credits are an attractive option for medium- to long-term export financing. However, due to their complexity, they were previously only available for larger transactions, usually from 5 million euros. Because TraFinScout has simplified buyer credits and digitized many process steps, buyer credits are now available through TraFinScout for as little as 500,000 euros.
Borrowers are foreign buyers (purchasers). A bank, usually in Germany, grants a loan to the foreign buyer or the buyer's bank (this is known as a bank-to-bank loan). This loan is paid to the exporter and serviced by the importer. The buyer credit is always tied to a specific delivery and/or service; this is why it is often referred to as a tied finance credit.
What are Export Credit Guarantees?
In developing and emerging countries, an export credit guarantee (Hermes Cover in Germany) is regularly a mandatory prerequisite for financing (buyer credit) or the purchase of receivables from supplier credits (forfaiting). Despite the additional costs of insurance, the total costs of an insured credit are usually lower than the total costs that an importer would pay for an "uncovered", i.e. uninsured credit in his home country. In addition, longer credit periods are usually possible. In developing countries with rather unstable political and economic conditions, financing without export credit insurance
is often not possible at all.
Why is this so? A state export credit insurance (ECA) ultimately replaces the creditworthiness of the borrower (buyer abroad) as far as possible with the good creditworthiness of the export credit insurance. In this way, banks can grant much more attractive credit conditions for a loan with ECA cover because the default risk is very low and does not have to be backed by equity. Euler Hermes, the export credit insurance company of the Federal Government, for example, has an excellent AAA rating, namely that of the Federal Republic of Germany.
In the interest of their export economy, export-oriented countries offer state export credit insurance to cover both economic and political risks.
State export credit insurances are subject to an international set of rules, the so-called OECD Consensus. It was
created in order to prevent the state subsidy systems from undercutting each other.
The most important regulations concern:
The terms of payment:
- at least 15 % down payment and interim payment
- max. 85 % loan
The maximum loan tenor
- usually 5 - 10 years,
- in certain industries (e.g. renewable energies, ships, aircraft) also longer,
- Loan tenors depend on project volume and industry sector
The start of repayment (so-called "starting point"), the minimum interest rates and the special rules for
- Project financing
- Ship financing
- Aircraft financing
State export credit insurers cover risks in foreign trade that the private insurance and banking market can
or wishes to assume only to a limited extent. They are particularly suitable for loans with longer maturities.
They are also needed when larger loan amounts have to be mobilised for buyers in developing and emerging countries.
ECA cover is provided on behalf of and for the account of the state budget.
In Germany they are the responsibility of the Ministry of Economic Affairs ("BMWi").
However, the management of ECA cover is usually the responsibility of a private insurance or
or auditing company. In Germany, the processing of all state export guarantees is entrusted to Euler
Hermes Aktiengesellschaft as a mandatary of the Federal Government, which is why the export guarantees
of the Federal Government are generally known as Hermes Cover.
What is a supplier credit?
In diesem Sinne verwenden auch wir den Begriff Lieferantenkredit.
Advantages for you as an exporter
- Supplier credits support your sales.
- The granting of supplier credits burdens your liquidity.
- As an exporter, you initially bear all risks from the supply transaction, e.g.
- credit risk (risk that the importer does not pay)
- currency risk
- transfer risk
- country risk
But of course you secure these risks with a supplier credit cover of the Federal Republic of Germany (Hermesdeckung) against a payment default due to political or economic risks and relieve your liquidity and your balance sheet by selling the receivables, a forfaiting.
What is forfaiting?
Where does the term forfaiting come from?
The term forfaiting comes from the French word "vendre a forfait". This means as much as "to sell in lump sum", i.e. completely. Forfaiting therefore means selling receivables. The buyer takes over an outstanding receivable from the seller without having any right of recourse against the seller in case of default. The seller also transfers to the buyer the risk that the debtor of the receivable will not fulfill its obligations. Translated with www.DeepL.com/Translator (free version)
Parties involved in forfaiting
Two parties are directly involved in a forfaiting transaction, the buyer and the seller of the receivable. In this context, the buyer is also referred to as the forfaiter and the seller as the forfaiter. Forfaiting is mainly used in the field of export financing.
Legal basis of forfaiting
A forfaiting is a purchase in the sense of § 433 ff. BGB (German Civil Code), specifically a so-called monetary claim is sold here.
What is the difference between forfaiting and factoring?
There are many similarities between forfaiting and factoring. Both involve the purchase, sale or purchase of receivables.
The main difference is that in factoring the specific receivables are initially unknown and only arise in the future (so-called generic purchase ). In this case, a framework agreement is regularly concluded that covers all, or at least a specifically defined part, of the receivables that will arise in the future. Factoring is usually only considered for receivables with terms of up to 180 days.
In forfaiting, a specifically specified receivable is sold on the basis of a contract concluded precisely for this receivable.
Supplier credit + forfaiting = attractive financing solution?
In order to remain internationally competitive, exporters must also be able to offer their foreign customers attractive payment terms together with the product, i.e. the most tailor-made, long-term financing possible from a single source. Customers often demand financing terms of several years.
We generally recommend a buyer credit for this purpose. Unfortunately, even TraFinScout do not offer buyer credits for order values below 500,000 euros.
In order to nevertheless offer financing to foreign customers, a so-called supplier credit can be granted, i.e. sold on installments. Often, only limited own funds are available for such lending and the own balance sheet should not be burdened.
Gesucht wird daher eine Finanzierungsalternative, die Handlungsspielraum für weiteres Wachstum gewährleistet und die bestehenden Kreditlinien nicht über einen längeren Zeitraum mit wenigen Aufträgen blockiert. Hierfür eignet sich eine
With forfaiting solution
Forfaiting involves the non-recourse sale of the entire receivables from the export transaction (installment payments agreed with the importer) to a bank or specialized forfaiting company; in the event of any non-payment by the importer occurring at a later date, there can be no further recourse to the exporter. Immediately after contractual delivery, the exporter receives the cash value of the purchase price installments reduced by the forfaiting costs. From the exporter's point of view, the supplier credit becomes a cash transaction. However, even after the sale of the receivable, the exporter remains responsible for its legal existence and the proper conduct of the delivery transaction.
For exports to developing and emerging countries, it is usually only supplier credit cover from the federal government (covering political and economic risks) that enables the sale of receivables and leads to attractive financing and forfaiting conditions.
The exporter does well to apply for supplier credit cover or credit insurance in parallel with the supply contract negotiations. It is important to ensure a low deductible for the commercial risks right from the start. Ideally, the reduction of the deductible to 5% should be applied for in the case of Hermes cover. This way, the economic ownership of the receivables can actually be transferred from the exporter to the bank or forfaiting company later ("true sale") and the exporter's balance sheet can be relieved. It is also advisable to discuss the drafting of the forfaiting agreement on the basis of the applicable accounting standards with the auditor or tax advisor so that the latter recognizes the true sale. Translated with www.DeepL.com/Translator (free version)
On balance, a supplier credit with forfaiting is always a good solution when order volumes for buyer credits are too low or buyers want to have the exporter as their sole contractual partner.
Advantages for you as an exporter
- Granting of long-term payment terms
- Immediate liquidity
- Balance sheet relief in the case of a true sale
- In the event of payment default, no recourse to the exporter, i.e. transfer of credit risks (payment, interest rate and currency risks) to the buying bank.
- A supplier credit requires some activities of its own and requires a certain know-how (export contract including financing offer must be calculated and designed, requirements of insurers and the forfaiting bank / forfaiting company must be fulfilled). If required, we or our accredited consultants will be happy to assist you.
The prerequisite for a true sale is that the economic ownership of the claim is transferred to the bank. The prerequisite for this is that the bank assumes the default risk, i.e. the credit risk must predominantly pass to the buyer. This examination and assessment of the individual case is ultimately the responsibility of the auditor or tax consultant on the basis of the applicable accounting standards.