An important step in preparing for a successful export is finding and securing appropriate financing. Slovak exporters have several tools at their disposal that they can use in this step. In today’s installment of the series “I Want to Be an Exporter,” produced by HN in collaboration with Eximbanka, we’ll look at two case studies. Through them, we’ll explain how choosing the right financing can facilitate entry into a foreign market.
Financing Exports to the EU
The first case study illustrates how a small Slovak exporter can secure export financing. This case study focuses on a manufacturer of specialized machinery for the processing industry that plans to expand its international sales to include the German market. Despite a high-quality product and strong demand, the company faces problems common to many exporters—a lack of financing and the absence of guarantees for foreign customers.
A problem arises when a customer from Germany requests a payment extension. However, the manufacturer lacks sufficient available resources and experience with export financing. Without financial certainty, the manufacturer cannot fulfill the contract. As a result, the manufacturer risks losing the opportunity to enter a new market.
The solution lies in finding the right form of financing. After consulting with experts from Eximbanka, the company utilized a combination of a pre-export loan and export credit insurance. The pre-export loan made it possible to finance the production and delivery of machinery without jeopardizing cash flow. The receivables insurance, in turn, protected the company against the risk of non-payment by a foreign customer. As a result, the Slovak company was able to secure a contract in Germany worth 250,000 euros without the need for an external investor.
The results were not long in coming. The project became a successful example of export expansion. The company increased its annual revenue by 45 percent, established a long-term relationship with a German partner, and earned a reference that opened the door to other markets in the European Union.
Other exporters can also learn valuable lessons and gain useful insights from this company’s experience. In fact, any Slovak entrepreneur planning to expand abroad can take advantage of similar support. EXIMBANKA SR offers practical solutions for all stages of exporting—from contract preparation to financing, insurance, and guarantees. “Before signing an international contract, consult with our experts. They will help you choose the right financing tool and minimize export risks,” recommends this state-owned export credit agency, established by law to support exports.
In this second example, we’ll look at selecting export insurance for a high-risk country. In this case, a Slovak manufacturer of grain processing technology receives an order from a partner in Kazakhstan. The order volume is attractive—totaling 320,000 euros—but the buyer requires payment only after the equipment is delivered and operations begin. This poses a significant financial risk for the company, as payment practices in this country are unreliable and local courts would not provide an effective resolution in the event of a dispute.
The main challenge in this situation is to ensure that a Slovak exporter receives payment for its product even if the foreign buyer fails to pay due to insolvency, political unrest, or currency transfer restrictions.
Risk Insurance
Eximbanka offered a solution in the form of a “Type B” export credit insurance policy—insurance against commercial and political risks. Under this policy, it provided the company with insurance covering up to 95 percent of the receivable’s value, protection against non-payment of invoices by a foreign customer, and coverage for risks arising from political events, such as government intervention, armed conflict, or the inability to transfer currency. Thanks to this product, the company was also able to secure favorable refinancing from a commercial bank, which accepted the insured receivable as collateral.
The results were positive. The Slovak company successfully delivered the technology to Kazakhstan and gained new markets in Central Asia without jeopardizing its cash flow. Furthermore, thanks to Eximbank’s insurance, it gained the confidence to expand its exports to less stable countries.
This case also offers an important lesson for exporters. If you do business with countries outside the European Union, export insurance is an essential part of a successful contract. Eximbanka will help you identify the risks specific to a given country, recommend the best insurance product, and ensure that you are always paid for your exports.
Author: Pavel Novotný
Source: Hospodárske noviny