January 23, 2021

What Is All About Export and Import Finance in the UK?

By : Ellie Brown

We live in a well-connected world today where every country is dependent on other countries for the supply of raw materials or finished goods since they don’t produce it. This trade is superfast these days. There are still certain complexities and delays in financing the import and export that happens across nations.

The financial burden and operational risk are significantly higher in such multilateral trade. There are long delays due to which you cannot service your customers, and this delay also has a financing cost.

There are direct lenders in the UK present online offering text loans to their retail and corporate customers. These are very convenient loans that come without collateral, and no guarantor presence is necessary. Thus, these are no guarantor unsecured loans which are even meant for bad credit borrowers. These loans are approved hours after it is applied for and once approved. The loan amount is transferred to borrower’s bank account in a jiffy.

Import and Export Finance Option

Let’s look at import and export financing options in the UK in detail for an in-depth understanding, here it goes:

Export Finance

Selling natively produced goods in the same country is one thing but exporting them to other countries has its share of challenges. Multiple negotiations go in, which are discussed below:

  • Negotiating Finance Terms: There are specific terms which need to be agreed upon by both the parties. It is the delivery of consignment terms that cover everything from packaging goods to transportation and who will bear the risk of any loss or damage during its shipping. The payment mode, currency applicable, and terms shall also be negotiated along with the buyer’s timelines of the release of payment.
  • Negotiate for costs covered in the deal you are signing, whether the contract subsumes transportation cost, documentation cost, cash discount, taxes, packaging, shipping, etc.
  • Payment Methods: The mode of payment you choose will determine the risk involved in the export deal. Make sure to include every clause of payment in the contract to avoid any surprises later.
  • Negotiate on the credit window offered by the seller and from which date that credit period starts. Choose the banks involved in trade finance for issuing a letter of credit and transferring money to the seller’s bank account on the goods’ successful shipment. You can use an overdraft facility with your bank or text loans as well for payment.
  • Foreign Currencies: Prefer choosing the vendor ready to accept the invoice and payment in your local currency. This is because there are certain forex risks and cost of exchange associated with cross-currency payments. The risk is while trading with countries having weaker currencies, for instance: countries from African countries.

Import Finance

While importing, you are responsible for making payment on time to the seller. Thus, you need to build your cash reserves in advance. You however still need to negotiate specific clauses of the contract with the exporter to get the best deal.

  • Negotiating Import Finance Terms: Cover all costs, risk, shipment, packaging, transport etc. comprehensively in the contract.
  • There are several costs in the likes of transaction costs, administrative costs, insurance and transport costs, excise duty and applicable VAT which should be explicitly and clearly in the contract.
  • Another necessary clause to be discussed is who will be liable for defective or damaged goods received by the importer?  
  • Delivery Terms: The delivery terms contain the timelines of delivery since you also have planned your production in advance on anticipation of timely delivery.
  • Ensure that who will take responsibility for packaging and shipping the goods, which will ensure the consignment, who will take ownership of the consignment once it leaves the manufacturing unit.
  • These are some of the questions that should be clarified well in advance to avoid any possibility of conflict later.
  • Payment Mode: Open account trading is predominant in the European Union region for buyer-seller with a dedicated history of working together.
  • Ask for a 30-45 days credit period depending on the consignment value and your negotiation skills. Ask for concessions and discounts and check whether if there is any discount on immediate or advance payment.
  • Ask whether payment should be made on the consignment’s successful delivery or whether when it is shipped by the seller and is in transit. You can contact your merchant banker for issuing a letter of credit or a bank guarantee to seller’s bank assuring payment.   
  • Import Duty & VAT: It is the importer’s responsibility to make sure that the VAT and other customs duties have been paid to get customs clearance.
  • VAT regulations are different for different countries, and when imported from any EU country, the importer can claim input tax as well. Import duty is also levied for goods purchased from non-EU countries and for goods. They are not in free circulation in the EU region are also subject to import duties.
  • Making Payment: This depends on the buyer-seller relation as to which mode of payment is preferred by the buyer and whether the seller is ready to accept payment through that mode.
  • Online payments (wire transfers, electronic transfers) are usually adopted as they are quick but ensure that which party will bear the fees charged on this transfer. You can involve multiple banks and request them to issue LC/BG or take text loans from any direct lender if you are in a hurry to make a quick payment. You can also plan to open an overseas bank account in the country

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