An important step in preparing for export is to explore preliminary financing and insurance options. The goal is to select the most suitable payment terms. We’ll be focusing on this very topic in the September installment of the series “I Want to Be an Exporter,” which HN is producing in collaboration with Eximbanka.
Terms of Delivery
Payment terms are linked to the actual delivery of the shipment. To facilitate the definition of obligations related to the transport of goods and liability for any damage to or loss of the shipment, customs clearance for exports and imports, as well as packaging and insurance, the International Chamber of Commerce (ICC) has developed the Incoterms delivery terms. These are regularly reviewed and updated. The latest version is from 2020.
It is important to note that businesses may apply any version of these terms and conditions. Therefore, in addition to referring to the Incoterms delivery clause, it is also necessary to specify the exact year according to which we will determine the division of responsibilities related to the delivery of goods between the seller and the buyer.
The use of Incoterms is not mandatory for either exporters or importers. It only becomes mandatory when the terms of delivery are referenced in contracts—that is, in the sales contract, shipping documents, and the like.
Tools Menu
When it comes to export financing and insurance, the key is to minimize risks and maximize exports. Slovak exporters have access to a comprehensive range of tools that enable them to secure financing at various stages of a business transaction. Support is available before the actual delivery—for example, in the form of pre-export loans for production and contract preparation—as well as during the transaction itself, in the form of guarantees or pre-export loan insurance, and even after the delivery of goods or services, in the form of export credits or buyer financing. There is also the option to utilize insurance products or projects targeting developing countries.
Let’s now take a closer look at financing products. The first of these is pre-export financing. This is a loan intended to cover production and operating costs that arise before the exporter receives payment. It helps ensure the smooth flow of production and shipments abroad.
In addition, there are guarantees that serve to strengthen an exporter’s credibility with foreign partners. They cover obligations arising from the contract and facilitate access to new business opportunities. Export credits provide financing for deliveries made directly to foreign buyers. The exporter receives payment immediately upon delivery, while the buyer has the option to repay the loan in installments. A special product offered by Eximbanka through the European Investment Bank’s credit line is preferential financing for small and medium-sized enterprises (SMEs). It offers them more favorable interest rates and longer repayment terms, thereby significantly facilitating the financing of both investments and working capital.
Export Insurance
Insurance products may also be of interest to exporters. There are several options available to them. Short-term export receivables insurance protects exporters against the risk of non-payment of invoices in the short term, typically within two years. It is also suitable for small and medium-sized enterprises, which can take advantage of simple online products available 24 hours a day, seven days a week.
Medium- and long-term insurance for investment projects is unique in that the coverage can be extended to periods longer than two years. This type of insurance is particularly important for large investment projects or ventures where receivables have long-term maturities.
Foreign investment insurance protects exporters who make investments in a foreign country. This allows them to protect themselves against political and territorial risks. The insurance covers situations such as expropriation, the inability to repatriate profits, or political unrest in the target market. Exporters can also take advantage of preferential export credits and insurance policies designed for projects in developing countries. Special preferential instruments are available, such as financing for buyer credits in the public sector or insurance for loans provided by commercial banks.
An interesting alternative may be to participate in large international projects and development tenders. Companies have access to expert advice and support in identifying suitable opportunities, as well as in securing the necessary financing and insurance.
Author Pavel Novotný
Source: Hospodárske noviny