RECENT DEVELOPMENTS IN EXPORT FINANCING: As stated earlier, offer of attractive credit terms is a crucial factor in winning export contracts. Hence, financial institutions are offering several innovative financial services to exporters. Some of these services are discussed below:
Factoring: It is an attractive way of providing export finance to exporters. In this system factor bears the complete credit risk. Who is a factor? A factor is a special type of agent who, depending upon the type of agreement, offers a variety of services. These services include coverage of credit risk, collection of export proceeds, and maintenance of accounts receivables and advance of funds. Purchase of receivables of its clients without recourse is the most important service of the factor. A big advantage to the exporter is that it is without recourse financing. This means that the risk of non-payment by the importer is to be borne entirely by the factor.
In India, International Export Factoring services on with recourse basis have been approved by the RBI. It provides a new dimension to management of export receivables. SBI Factors and Coinmercial Services Pvt. Ltd., Bombay have been permitted to provide International Export Factoring. In this system, the exporter enters into an export factoring agreement with exporter's factor. The exporters ship goods to approved foreign buyers. Each invoice is made payable to a specific factor in the importer's country. Copies of invoices and shipping
Documents are sent to the Importers factor. Exporter's factor will make prepayment to the export against approved export receivables. On receipt of payments from the importer on due date of invoice, importer's factor remits the fund to the exporter's factor. The exporter's factor pays to the exporter after deducting the amount of prepayments.
Forfaiting: Forfaiting refers to the non-recourse discounting of export receivables. It is a mechanism of financing exports that involves less risks and enhances international competitiveness. It Converts a credit sale into cash sale for an exporter. In this system for faiting agency discounts inl.ernationa1 trade receivables of the exporter. The forfaiter pays the exporter in cash and undertakes the risk associated with the export deal. The exporter surrenders, without recourse to him, his rights to clarify r payment on goods delivered to an importer.
All exports of capital goods and other goods made on medium to long term credit are eligible to be financed through forfaiting. In India, EXIM bank play an intermediary role between the Indian exporter and the overseas forfaiting agency. The exporter approaches EXIM bank for forfaiting transaction. EXIM bank obtains details from overseas agencies related to the transaction. The bank receives bills of exchange or promissory notes from the exporter and sends them to the forfaiter for discounting. Subsequently, the bank arranges for the discounted proceeds to be exitted to the Indian exporter. The bank issues appropriate certificates to enable Indian exporters to remit commitment fees and other charges.