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Finance Against Collections
Banks like export collections because:
  •  There is evidence of the movement of goods
  •  There is the likelihood of the buyer paying for the goods and so that the proceeds can be used to repay the bank’s advance (making the advance self-liquidating)
  •  Since ICC Uniform Rules for Collection usually govern the collection process, there is every chance that transactions will be monitored independently of the exporter, with the bank receiving advices of non-payment even before the exporter
  •  Finance may be provided on a transaction-by-transaction basis.

Finance against collections without insurance cover

The bank will want to be satisfied about the exporter’s bona fides and would normally ask for:

  •  Copies of sales contacts
  •  Details of individual buyers and the agreed terms of trade with each
  •  Details of the maximum amount anticipated as being outstanding against each buyer at any one time.
  •  Details of the amounts within the maximum for each buyer that would be on D/A (documents against acceptance) terms
  •  A cash-flow projection, validated by accountants, showing payments to suppliers, overheads and projected receipts from individual bills.

The bank may agree finance subject to the following matters being specifically dealt with in the appropriate facility letter:

  •  Specific countries acceptable or specific countries not acceptable
  •  Or each buyer, overall limits, the maximum period for bills and the maximum sales on D/A (documents against acceptance) terms
  • The percentage of advance, including any lower percentages for D/A (documents against acceptance) bills or bills of longer maturities

There would also be specific reference to the fact that, if payment is not received from the buyer, the bank has the right to claim immediate repayment from the exporter.

As security for the facility the exporter will usually be required to provide:

  •  A formal letter of hypothecation (pledging them rights to the proceeds) over all bills, past, present and future, and
  •  Where appropriate, a suitable letter of waiver from anyone holding a debenture that gives them rights over the same assets or proceeds.

Initially, finance may be provided on a bill-by-bill basis on a bill advance facility. Later on, the bank might agree to a more flexible approach under which the total outstanding on loan or overdraft is to be secured by the value of the total export bills held (after applying an agreed margin).

Finance against collections with insurance cover

Export finance provided without export insurance cover understandably depends on whether buyers and their countries of domicile are acceptable to the bank. Exporters who want to expand their markets may find other countries and buyers less acceptable to the bank. Pressure to expand markets comes both from competition in more acceptable markets and from the prospect of higher profit margins in emerging markets.

One marketing strategy in such markets may well be the granting of longer payment periods. In these circumstances, the bank may be willing to consider any proposition for additional finance only on condition that the exporter obtains Credit insurance. Such additional finance may form part of the overall package of finance for export bills.



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