When an exporter gets an order to supply goods or services to a buyer overseas, it can ask to be paid upfront – at the time the buyer places the order, or before the goods and services are delivered if the exporter needs time to make the goods. This is a safe way of exporting because the exporter knows it will get its money before the goods or services are delivered. However, this approach might also mean the exporter will not enter as many export contracts as it could because its buyers may require time to pay, i.e. credit terms.
Most buyers these days need credit from their suppliers. For example, a buyer might be unwilling to place an export order unless it is allowed to pay for the goods or services only when they have been delivered. This means that the exporter has to offer credit for 30, 60 or 90 days, or however long it takes for the goods to arrive, before the buyer will pay and the exporter will receive payment. In fact, most exports from the UK are sold on short credit terms, usually up to 180 days.
When an exporter gives credit to its buyer it faces two particular problems. First, it has to wait for its money; this affects its cash-flow. Second, it is exposed to the risk that the buyer won’t or can’t pay for the exports; for example, between the time the exporter ships the goods and them arriving at the buyer’s premises, the buyer may have gone bankrupt and be unable to pay. This could then lead to the exporter becoming insolvent if it involved a large sum of money.
Exporters can go to their bank or to specialist financial organisations to help them get finance, and to credit insurers to get insurance against the risk of not being paid. But if some exporters are unable to get help from these private sources, UK Export Finance may be able to assist.