Trade finance

Currently, the activities of almost any enterprise are associated with foreign suppliers and buyers: from the acquisition of components, materials, raw materials, equipment to the sale of finished products and goods to foreign markets.

Even if the company is not a participant in foreign economic activity and purchases goods or equipment from a domestic supplier, then if these goods and equipment are of foreign origin (in whole or in part), it can use foreign trade finance instruments and get a loan for the period of sale of the goods or depreciation equipment on the international market.

Also, using trade finance tools, you can provide a foreign buyer with a deferred payment for a long period of time and at the same time receive revenue immediately after the goods are shipped.

Trade finance, widely used in advanced economies, is now available for domestic enterprises. This article will examine the most common and affordable trade finance instruments for domestic enterprises.

Purchasing

The most common tool for financing procurement is financing of import supplies - both for the purchase of raw materials, materials, components, goods, and for the purchase of equipment and services of investment value, for example, construction work. The terms of financing for materials and goods used for the production cycle or resale will be up to 12 months, for equipment - up to 5 years, for construction works - from 5 to 20 years.

Depending on the term of the desired commodity loan and the speed of processing, four main import financing schemes are used: 1) under the guarantee of the buyer's bank (Russian bank) and insurance coverage of ECA; 2) under the cover of ECA; 3) against the guarantee of a Russian bank (buyer's bank); 4) from a foreign bank.

Sales

Providing the buyer with a deferred payment equal to the period of sale of the goods or depreciation of the equipment significantly increases the attractiveness of the supplier (and, accordingly, its products). A domestic company can attract financing for a deferred payment on international terms: term - up to 7 years, cost - from 3.5% per annum in euros.

Four main sources of export financing are available for domestic enterprises: through state-owned Roseximbank and EXIAR (Russian Agency for Export Credit and Investment Insurance), as well as forfaiting and factoring - instruments of international financial institutions ^[2] .

The set of instruments for financing import contracts offered by banks is quite wide today, and their use is often more advantageous than conventional loans. So, the use of a letter of credit with post-financing will reduce both the cost of attracted resources and commercial risks.

A documentary letter of credit is an independent obligation of a bank to make a payment on the basis of a pre-agreed list of documents and is the most secure form of payment widely used in international practice. Recently, in addition to the traditional function of a tool to reduce commercial risks, a documentary letter of credit is increasingly acting as a tool to attract financing.

It works as follows: a foreign bank makes a payment to the supplier-exporter after the exporter submits a pre-agreed set of documents and at the same time provides a deferred payment for the importer's bank, which provides a similar delay to its client (buyer).

Due to the fact that the cost of resources on foreign markets remains lower than on the domestic market, the total cost of financing for the importing client, even taking into account the margin of a Russian bank, will be lower than the cost of a standard loan.

Thus, the buyer-importer actually receives a two-in-one product - reduction of commercial risks and financing at interesting rates. Naturally, the cost of attracting from foreign financial institutions is the lower, the higher the rating of the Russian bank that issued the letter of credit.

When can I use a letter of credit with financing? In the case of any import, the geography of purchases is unlimited. A feature of the tool is its flexibility: the financing period can vary from 60 days to 7 years depending on the needs of the client, the turnover of goods (payback of equipment) and the terms of credit lines established by foreign banks at the Russian importer’s bank. Standard purchases of raw materials and consumer goods do not require financing for more than one year. Equipment requires longer payback periods, so in such cases, the financing period usually exceeds 3 years. The repayment schedule is also "customized" to the needs of the client.

As for the financing currency, the most common option on the Russian market remains the option of financing in the currency of the contract. However, for example, Sberbank has the ability to provide financing in rubles under this instrument.

There are a lot of banks offering this product on the Russian market, but only large banks are able to quickly and at the lowest cost to implement the transaction due to the existing limits of financing in foreign banks.

Thus, if your company has a need to purchase imported goods, the use of letters of credit with post-financing will give you the opportunity to reduce the cost of attracting financing, reduce commercial risks in settlements with the supplier, and therefore increase the efficiency of your business ^[3] .

Financing the import of goods covered by a foreign export credit agency is possible without the help of the bank of the importing country. Having delved into the rather simple essence of the scheme, the company can purchase almost any foreign product at 4-6% per annum for up to 7 years and without providing collateral.

Acting as an insurer in a transaction, ECA covers two types of risks: political and commercial . Political ones depend solely on the country of the borrower, commercial ones depend on the credit quality of the borrower. It is one thing to provide transaction coverage to a buyer, which is a large company with an international rating, and another thing to a small manufacturer operating in the local market of one region.

However, even representatives of small and medium-sized businesses have the opportunity to receive direct financing from foreign banks on international conditions.

Companies with transparent financial statements, a long history of foreign purchases and positive payment statistics have good chances to get the claimed insurance coverage in ECA.

In practice, the majority of domestic enterprises have reports that do not correspond to the real situation, often the business is divided into several separate firms, and the import contract is concluded for a third company. To get financing from foreign banks under ECA coverage, you must first at least “on paper” tidy up the statements: consolidate the financial statements, translate the statements into international standards ( IFRS ) based on management reporting data. If the company does not have this specialist, then this service can be ordered externally, as a rule, this procedure takes 1-3 months and costs about 200-400 thousand rubles. ECA makes a decision within 2-4 weeks depending on the country of the exporter, the amount of the contract, the type of product and the quality of the borrower. Further, usually, the supplier himself provides a deferment under the supply contract and, after the shipment of the goods, receives financing from his (international, foreign) bank. Thus, legally, the buyer received a loan in the form of a deferred payment under the supply contract and is obliged to pay the goods to the supplier within the time specified in the contract. The supplier, in turn, returns the loan to the bank.

As for obtaining a loan by a supplier in a bank, as a rule, in Europe this happens automatically upon presentation of shipping documents. In a number of Asian countries, in particular in China, the provision of insurance does not mean automatic financing - banks are still beginning to evaluate the seller ^[4] .

The support of national exporters is an integral part of the economic policies of all developed countries. This is explained by the importance of this function in terms of increasing the country's competitiveness in world markets, managing the balance of payments, expanding employment, production volumes and collecting taxes.

In developed countries, export support is mainly done through insurance agencies. Export credit agencies insure export contracts against commercial and political risks - thus the risk of insolvency of a foreign buyer and the risk of the country where this buyer is located are removed from the exporting company. And by insuring your risks under the contract, the exporter gets more opportunities to attract financing. Thus, financing and insurance of export contracts are two complementary instruments.

In Russia, a mixed system of state export support has developed; it includes subsidizing part of interest rates ( Ministry of Industry and Trade ) and providing state guarantees ( Ministry of Finance and Roseximbank). State guarantees apply when a domestic exporter is obliged by contract or law to provide his foreign buyer with a guarantee that the Russian products sold by him will be delivered on time and in full.

Since the end of 2011, a new tool for the state system of export support in Russia has been insurance of export loans from business and political risks. In October 2011, the Russian Agency for Export Credit and Investment Insurance (EXIAR) was established. The Agency is a wholly-owned subsidiary of Vnesheconombank ; its authorized capital is 33 billion rubles.

EXIAR will promote Russian equipment and technology exports, support and insurance support for domestic exporters in new and risky foreign markets, create and implement a modern system of financial support for exports secured by agency insurance coverage, increase transparency of Russian export operations and international investments.

The Agency’s activities are regulated by the Federal Law of July 18, 2011 No. 236-ФЗ “On Amending Certain Legislative Acts of the Russian Federation in order to Improve the Insurance Mechanism for Export Credits and Investments against Business and Political Risks” and the Decree of the Government of the Russian Federation of November 22, 2011 No. 964 “On the procedure for carrying out activities on insurance of export loans and investments from business and political risks”.

The meaning of the new structure is the assumption by the state of the credit and political risks of exporters, who - in addition to, in fact, insurance coverage - thereby gain access to cheaper bank loans. Coverage, which can be obtained under an insurance contract, cannot exceed 90% of the insurance value for insurance of business risks and 95% for insurance of political risks. The insurance rate is calculated based on the financial condition of the debtor, the level of risk, the amount and term of the export loan, as well as other factors. According to the Ministry of Economic Development, in the first year of operation (2012), EXIAR will be able to insure loans for $ 1 billion, in the second (2013) - up to $ 20 billion.

Main Products EXIAR

• Export Credit Insurance
• Warranty Insurance
• Supplier Credit Insurance
• Letter of credit risk insurance
• Buyer Credit Insurance
• Cross-border rental / leasing insurance
• Political risk insurance for Russian investments abroad ^[5]