Export finance, in a nutshell, helps exporters to raise credit to their customers. This enables exporters to offer payment terms.
Export finance can be delivered by trade finance companies or UK Export Finance.
UKEF is the UK’s export credit agency. It helps UK companies by providing insurance to exporters and guarantees to banks to share the risks of providing export financing.
Therefore, UK Export Finance – UKEF works closely with exporters, banks, and buyers to support exports to, and investments in, markets across the world.
Export finance enhances cash flow and helps exporters to win bigger contracts by,
- Paying the exporter when due on the buyer’s behalf,
- Taking buyer credit risk.
How does UKEF help businesses?
Export Financing UK has regional representatives all across the UK. They act as local points of contact to introduce exporters and businesses with export potential to finance providers, credit insurers, insurance brokers, trade support bodies and sources of government support.
Insures UK exporters against non-payment by their overseas buyers.
Helps overseas buyers to buy goods and services from UK exporters by guaranteeing or funding bank loans to finance the purchases.
Shares credit risks with banks to help exporters raise tender and contract bonds, in accessing pre- and post-shipment working capital finance and in securing confirmations of letters of credit.
On the governments level, insures UK investors in overseas markets against political risks.
UKEF supports schemes are,
Export Credit Insurance (EXIP)
Export Working Capital Scheme
Buyer Credit Facility
Direct Lending Facility
Letter of Credit Guarantee Scheme
Bond Support Scheme
Under the Bond Support Scheme UKEF provides partial guarantees to banks in support of UK exports. Where a bank issues a contract bond (or indemnifies an overseas bank providing the bond) in respect of a UK export contract, UKEF can typically guarantee up to 80% of the value of the bond.
The bond policy protects the exporter against loss caused by:
- Wrongful calling of the counter-guarantee,
- Fair calling of the bond due to certain political events.
- UK Export Finance can consider cover for all types of bonds for export contracts, except tender or bid bonds.
The main types of bonds that UKEF is asked to cover are advance payment bonds and performance bonds. Additionally, it can also consider providing cover for reducing bonds, which are bonds under which the amount payable reduces over time or as goods or services are delivered.
How can I get export finance?
That said, if your trade needs less than £2 Mio, it is less likely to attract the appetite of UKEF.
This is where export finance partners takes the place.
They offer a low cost, simple guarantees. It might be cheaper than banks or vice versa. Should check it thoroughly. Here is an example pricing scheme of an export finance partner,
For example, if you want to give the buyer 90 days to pay, they might charge 2% on the invoice amount. Fees are included in pricing.
“It is strange to me that most people assume companies will be imperfect (as they are), but they assume that government agencies will be perfect, which they are not.”Matt Ridley
What is the letter of guarantee?
A Guarantee provides a purchaser with the security of a guarantee if the seller fails to meet its payment terms.
To support UK business, UK Export Finance provides a letter of guarantee scheme which is and partial guarantee by UKEF to banks. British banks add its confirmation to a letter of credit issued by an overseas bank for UK export. UKEF is likely to guarantee between 50 per cent and 90 per cent of the value of the letter of credit.
Pro Tip. The exporter must be carrying on business in the UK and the exports must be produced in and shipped from the UK or imported into the UK before being re-exported.
To find out more about this policy and for details on how to apply, please visit
What are the benefits of the Letter of Guarantee scheme?
The British bank can confirm an L/C even if it doesn’t have risk appetite on the foreign issuing banks for the full amount.
The UK bank receives a guarantee from UKEF to cover the part of the amount due to it if the other bank fails to reimburse payments.
The exporter is protected against a default of the foreign buyer and the foreign bank.
What are the advantages and disadvantages of trade finance Schemes?
Advantages of trade finance options are,
- a relatively easy way to arrange short-term finance,
- it helps business to focus on growth activities,
- the finance is typically secured against the goods or backed by an insurance policy
Disadvantages of trade finance options are,
- It is usually based on having a good track record in terms of operations and repayments, and therefore less accessible for new companies.
- It can become very expensive if payments are not made on time.
The information available in this article is not intended to be a comprehensive description of our overseas investment insurance and many details which are relevant to particular circumstances may have been omitted. Investors must read the policy to see whether it meets their needs
When considering applications, underwriters will look at each case on its merits.
foodnomy is here to help
Our export managers provide free and impartial consultations. We help UK companies to check they are getting the appropriate support and, if not, explore how to bridge any gaps.