Export Finance Information for UK Businesses

Your guide to export finance and how factoring can help you get some of the value of your export sales before your customers have even paid.

Where do I find export finance?

Many banks that once helped local businesses get funding for exports no longer do so and the ones that still work with would-be small exporters can tend to be picky about businesses with no exporting history. But don’t write off anything, it is worth picking up with banks to see if any of them can support with letters of credit or other financing options.

Subsidiaries of foreign banks from the market that you’re targeting may be eager to promote more trade with their country, as well as offering business insights and tips for dealing with regulations that only a local would know.

Local Chambers of Commerce and government organisations, such as UK Trade & Industry and UK Export Finance can help with practical advice and support.

There are also some non-bank lenders happy to get involved, so have a look at our platform.

Where do I find ‘practical advice and support’ for export finance?

Some government agencies or organisations, such as UKEF who I mentioned above, work with small businesses by acting as a sort-of middleman between you and the bank. For example, after reviewing your situation, they may provide a partial guarantee for working capital. By doing this, they’re essentially sharing lender risk, which makes banks more comfortable about offering you financing. A partial guarantee might also make them willing to loan you more cash than they would have before, or to open up a larger line of credit.

These organisations can also help you obtain any necessary letters of credit from the bank. By issuing a letter of credit, the bank provides greater security for exporter-to-customer transactions. The letter ensures that the customer will pay the specified amount within a specified timeframe once the exporter has fulfilled the shipment and delivery terms.

Again, our platform can help you access lenders who might be willing to assist with these options, as well as with another possibility which is factoring.

How does factoring play a role in export finance?

Factoring lets you get some of the value of your export sales before your customers have even paid their invoices.

It works like this: say you’ve shipped an order to a customer overseas, and that customer has now taken delivery of those products. You’re ready to send an invoice, but that doesn’t mean you can expect payment right away, you might have to wait 90 days or more for the cash to arrive.

With factoring, when you invoice your customer, you also send a copy to an invoice finance lender. That organisation then advances you a portion of your total invoice – maybe as much as 90 per cent – within a day or so. You get money much earlier than three months from now, and the invoice finance company chases your customer for payment in full. Once that payment comes through, you get the remaining balance of your invoice.

Where does the factoring provider make its money?

The invoice finance lender will charge a fee for its services and usually takes that amount out of the advance it pays you. So, yes, the service will cost you but you’ll be able to access other services for that fee as well. Organisations that offer factoring can also take care of your collections and sales ledger management and usually provide a way for you to keep track of everything online.

Consider negotiating a lower price for quick payment

Although not a ‘funding type’, negotiating more favourable rates can help you manage your cash flow more effectively.  If you have already exported the goods and your customer has received them, but payment is not yet due, it may be worth negotiating a lower price in return for quick payment. Work out the benefits and implications though, before you start such negotiations!

What is the difference between export finance and trade finance?

Export finance

The profitability of exporting goods internationally can quickly be lost due to a number of factors.  These can be from extended payment terms, shipping times, or credit checking foreign customers.  Export finance helps you mitigate some of this time lost by releasing the working capital tied up in your exported goods invoices, in advance and then managing to process of recouping the funds directly from your foreign customer.

Trade finance

Trade finance is a term used to describe many forms of finance specifically created to assist in the release of working capital for both import AND export invoices.  Trade finance could refer to invoice finance, balance sheet lending, letters of credit, or purchase order finance.  Ordinarily trade finance deals with cross border trade but can sometimes refer to domestic trade as well.