UK export finance: a guide for small business

Discover how to make your export process easier and quicker. Learn more about export finance here

If your UK small business sells products overseas, then you’re an exporter – it’s as simple as that. With international sales come added benefits, as well as increased challenges.

If you’re looking for a way to boost your international output, consider export finance. Read on to learn more about this type of financing and discover if it’s right for your small business.

Export finance relates to financing specifically for exported goods. So if the invoices you raise are for international orders and you’re looking for a way to maximise the resources available to your small business, export finance may be an option.

If you’re looking for ways to improve your cash flow in the UK only, invoice factoring is a more suitable method for your business.

Export finance is a specialist form of finance available to businesses at varying stages of development. Whether you are already producing goods for export, or you intend to start your small business with an international strategy, it’s worthwhile learning more about this type of finance, and what impact it could have on your business.

Export finance can be a tricky subject to understand, with a variety of information available. We’ll aim to connect the resources together and explain how it can be beneficial to your small business – providing it’s applicable and relevant.

In this article, we’ll focus specifically on UK export finance. Key questions we’ll cover include:

Now we’ll move on to answer these common concerns in more detail. If you’re ready to compare quotes now, you can fill out the form at the top of the page.


What is export finance?

Export finance is a type of finance provided to help release working capital during the production and exportation stages. Working capital is the term given to the amount of cash a business has access to – it’s more commonly referred to as cash flow.

Export finance providers step in to help facilitate trade between buyers and sellers by taking out an advance on products. The aim is to help reduce the time gap between sending products and receiving payment.

How does export finance work?

There are three main stakeholders involved in an export finance transaction. These are: the exporter, the buyer, and the finance provider.

So what is the process?

  1. A commercial contract is created for an order between your UK-based export business and an international buyer
  2. You send the products to the buyer to fulfill the order
  3. An advance of the value of the exported products is sent to you by the export finance provider
  4. You receive the funds from the buyer as agreed in the contract
  5. You then repay the finance provider the advance, plus any additional fees

What types of export finance are available?

There are a few options when it comes to deciding which form of export finance is best for your business.

Here’s a quick overview of the available types:

  • Bonds/guarantees – used to compensate the buyer from the supplier’s bank in case a supplier fails to fulfil an order
  • Export factoring – the selling of international invoices to a financier for an advance of the invoice amount, minus fees
  • Insurance – a policy issued, usually by a credit insurer, for a seller, to counter the risk of not receiving payment from the buyer
  • Letters of credit – a bank-issued document that guarantees the supplier will receive payment from the buyer who is guaranteed that the supplier will ship the products; if the buyer cannot make the payment, the bank will cover the amount
  • Loans – usually available from banks or export credit agencies, funds can be lent to your business to cover short-term cashflow gaps

What is the difference between trade finance and export finance?

While researching, you may come across these two terms. While closely related and interlinked, there are some differences. Trade finance is an overarching term used for both import and export finance for both international and domestic trade.

It also refers to funding to help businesses purchase goods. Whereas export finance is a specialist form of funding and is used to help cover the gap between exporting a product and receiving payment.

The focus of this article is export finance.

Key terms

  • Export – to send products overseas to be sold
  • Export finance – funds provided in advance to cover gap between sending goods and receiving payment
  • Letters of credit – a legally binding document used globally between exporters and banks to ensure payment is received for products
  • Open account term – a type of transaction in which products are sent and payment is received after; this is the most common transaction type used in exporting
  • Trade finance – funding to help businesses purchase goods
  • Working capital – amount of cash a business has access to; also known as cashflow

How to choose UK export finance advisors

When deciding on which type of export finance is most suited to your business needs, you essentially have three options.

You can opt for financing from: government organisations, banks, or private financiers.

To help you decide which type of export finance provider is best for your business, here is some more information on what they do and how to apply.

Government organisations – these are bodies such as UK Export Finance (UKEF) and UK Trade and Investment (UKTI). UKEF offers free consultation sessions across the country to give impartial advice to help UK businesses with export contracts, plus its bond, guarantee and insurance schemes.

Banks – For many small businesses, banks are the first port of call when requiring additional finance options. Banks can offer letters of credit and other guarantees in order to ensure that you receive payment for products that you’ve shipped overseas.

Private financiers – If you can’t or don’t want to apply to a government organisation or a bank, another alternative is working with a private financier. Sometimes, these companies also offer services for other aspects of the export process too, such as shipping and customs, in addition to export finance.

Provider Application process Cost
UKEF Depends on option – generally, check eligibility online then contact either the bank or UKEF directly Free consultation services; bonds, guarantees and other schemes have variable fees
Banks Application form; contact the bank; meet with bank Contact the bank
Private financiers Contact company; provide required documents Variable, depending on the number and value of invoices and payment due date. Factoring fees are generally a percentage of the invoice amount

What is an export credit agency?

An export credit agency is an organisation that acts as a middle point between the government and the export business. While an agency can be governmental or private, many countries have one official agency.

One of the key functions of an export credit agency is to mitigate risk, whether that is political, commercial or financial.

In the UK, the official export credit agency is UKEF; a government department that works in partnership with UKTI.

UKEF export finance

UKEF could help your business if you’ve been unable to secure finance from alternative sources, such as a bank or a private finance company. UKEF has a number of schemes and policies in place that you may be able to seek assistance from if your business is eligible.

These include:

  • Bond Support Scheme – if a contract requires a bond, this scheme guarantees your bank up to 80% of the bond value
  • Export Working Capital Scheme – a partial guarantee for credit risk when dealing with international contracts of a higher number or value
  • Export Insurance Policy – insurance for your business if you are unable to complete an order for extraordinary reasons, such as country or supply chain challenges

UKEF works with a range of businesses of varying sizes, outputs, and sectors. Some of its schemes are available directly through the organisation, whereas others (particularly the bonds and guarantees) can be accessed by applying to the banks.

UKEF can assist in all stages of the export process: from providing finance in order to secure contracts, offering loans to support production, as well as protecting payments with insurance.


Is export finance right for your small business?

When deciding if UK export finance is right for your business, you should consider:

  • Cost – while you can receive an advance or a loan to help your business fulfill an order, it’s important to bear in mind that this may be minus any fees/charges for the service
  • Eligibility – be sure to check that your business meets the requirements of the export finance provider
  • Risk – this is two-sided: consider the risk of what and where you’re exporting to, as well as the risk of any potential penalties for not being able to produce what you’ve signed up to deliver
  • Timeframe – selecting a private lender, organising a consultation with an advisor and the actual production, shipping and payment process itself can all be lengthy. Account for the time needed to research your options, be approved for export finance as well as for your usual production timeline too

What are the benefits?

While this type of financing may not be suitable for every export business, it’s worthwhile to highlight the potential benefits for those few that it may apply to.

So what positive impacts could you potentially expect to see for your business?

  • Increased opportunities – whether you decide to market in a new territory or seek to compete in regions with similar companies, export finance can help you access locations that were previously off-limits for your business
  • Growth – while no one can guarantee improved profits, by having access to finance that can help you expand your reach, you can benefit from more exposure and the potential to extend your company’s niche and sales
  • Reduced wait for payments – with export payment timeframes that can range from 30, 60, 90 or up to 180 days, export finance can assist with the gap between shipping products and receiving funds. This means you can get on with fulfilling your next order sooner

Summary

This article should have helped you to understand more about the key terms, strengths and challenges of using invoice factoring.

You should also have learnt more about some of the types of finance available to you, as well as the role of an export credit agency.


Compare export finance options

The information on this page should help you to understand what your business might need in terms of export finance. For more information though, you should compare quotes today – Startups can help with this.

Comparing UK quotes with Startups is the best way to find the service and provider most suited to your business. To start this comparison now, simply click an option below.

This process is free, quick and easy, and it could save your business both time and money.

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