Export Credit Agency Finnvera Helps Vahterus Secure Customer Financing
Did you know that, with the help of the right financing options, an export business can offer buyers credit at competitive rates? These options include bills of exchange and deferred letters of credit.
Erno Ihto, Senior Advisor at Finnvera
Finnvera is a specialist financing company owned by the State of Finland and the official Export Credit Agency of Finland. One of Finnvera’s main goals is to improve the competitiveness of Finnish small and medium-sized export enterprises. Guarantees granted by Finnvera usually help a foreign buyer get financing with a longer repayment horizon and, in some cases, at better rates than those offered in the local private sector. This year, one of Finnvera’s main focus areas is to provide guidance on financial and risk management of export business for SMEs.
In the European Union and elsewhere in the West, a bill of exchange can be used as a payment method in customer financing. When it comes to large deals, an example of the sort of payment terms that Vahterus can agree with the distributor might be 30% of the purchase price to be paid upon placing the order, and 70% covered by two bills of exchange falling due 180 and 360 days after the delivery. Payment terms like these can be crucial in a situation where the distributor will not be paid by the end user until later, meaning that they need a longer payment term for an individual Vahterus delivery.
The bank that buys and discounts a bill of exchange can transfer the associated credit risks to Finnvera. Finnvera conducts a risk analysis of every project using information such as the buyer’s credit and financial statement data. Depending on the risks involved in the project, Finnvera can even guarantee a bill of exchange without the buyer supplying a guarantee of their own. In addition to the above, Finnvera also verifies that the bill of exchange is a valid payment instrument in the country of sale, and that the country to which the product is delivered is creditworthy. A Finnish export company applies for the guarantee for a bill of exchange. When applying for a guarantee, Vahterus must provide information about the buyer, the export deal and financing, and must answer questions about bribery and environmental assessment.
In the emerging markets of Asia, Middle East and Africa, a letter of credit is a common payment method. A confirmed letter of credit is a useful instrument for small or medium-sized export businesses because, in addition to an undertaking being made by the buyer’s bank, the exporter’s bank also undertakes to pay the exporter if the terms of the letter of credit are fulfilled.
A letter of credit can also be used to grant the buyer more time for payment. If necessary, the confirming bank can share the credit risks associated with the country of export and the issuing bank together with Finnvera. A guarantee granted by Finnvera may allow a longer payment time for the letter of credit. The confirming bank applies to Finnvera for a letter of credit guarantee.