Do you need finance for exporting?

You are considering exporting as a way to expand your business, but you need the money to make it happen. Fortunately, there is a lot of help available to exporters, as the South African government is keen to develop our export market share. As a result, there are a number of useful incentives to help businesses enter the export sector. 

Finance for the completion of export orders can also be raised through formal lenders such as banks, specialist export lenders and some of the government agencies.

The government incentives available include financing export market research, exhibiting at international pavilions, providing favourable exchange rates, financing the capital required to process an export order and setting up long-term import and export credit facilities. 

A really useful source of information for exporters is The Export Help website. It provides you with a host of useful export tips, so check out the website if you are keen to get a rounded view of all the help that is available for exporters.

It is important to have your facts straight before you talk to export financiers.  In particular, make sure you have researched the possible risks associated with exporting, as the export financier will expect you to be able to answer questions on these.

Before applying for export finance, it is a good idea to have included the cost of the reduced cash flow in the amount of finance you ask for. What this means is that your budget needs to take into account the long gap between the time you accept the export order, and the time you finally get paid for it. This delay is primarily due to shipping times, customs delays and exchange control delays.  Ensure you factor these additional costs into the amount you will need to borrow.

It is not uncommon in international trade to insure not only the goods that are being shipped against loss, theft or damage during transit, but also to insure against a buyer reneging on his/her obligation to pay for an export order placed. 

A lot can go wrong between the placing of an order by an overseas client and the due date for him/her to pay. For example, the buyer could go bankrupt or run into cash-flow problems, or the country or region could fall into a state of war or economic collapse that freezes trade. 

This is why many lenders will insist on your business insuring against non-payment by the overseas buyer before they agree to finance an export deal.  The cost of the insurance depends on the risk associated with the region to which you will be exporting the goods. Export credit insurers study the risks of doing business with specific countries and work according to a classification system. 

The largest credit-insurance firm in South Africa, Credit Guarantee Insurance Corporation, classifies countries from the least risky (1A) to the most risky (3C). The number refers to the political stability of the country and the letter describes the payment culture in the country. 

If you are exporting to 1A countries, Credit Guarantee will pay out 90% of the deal if the client fails to pay; for all other countries they will pay out 80%. Business with certain countries such as Zimbabwe is not insurable, while in other high-risk countries Credit Guarantee will only insure on the basis of a letter of credit.

The premiums will also depend on the length of the buyer's terms, the value of the deal and the way in which the deal is secured e.g. a letter of credit confirmed in South Africa carries no risk, but one confirmed by an overseas bank may still contain some risk. 

Premiums start at R3 500 per month. The insurer would usually insist on insuring a business’ entire debtors' book, and not just one export transaction at a time. 

For more information on how the countries are rated, read the information contained in the Country Risk pages of the CountryHelp website.

Finance is available for the different stages of exporting, from research through to final execution and trade logistics.