UNIT- 6
Export Credits
• Definition: Export credits are financial tools provided to exporters to support the sale
of goods/services to foreign buyers by offering flexible financing options, reduced
risks, and extended payment terms.
• Importance: Facilitates smoother international transactions by reducing financial
burdens on buyers and ensuring payment security for exporters.
Types of Export Credits
Type Description Key Features
Supplier Credit extended directly by the exporter to the Exporter assumes all
Credit foreign buyer. payment risks.
Buyer Loan provided by a financial institution in the Often used for large
Credit exporter’s country to the buyer. transactions.
Methods of Export Credit
Method Description Benefits
Direct Loans provided directly by financial Ensures exporters get
Financing institutions to exporters or buyers. immediate payment.
Exporters receive payment upfront by Reduces exporters’ financial
Refinancing
transferring credit risks to banks. risks.
ECAs guarantee banks for loans provided to Encourages lenders to
Guarantees
exporters, reducing non-payment risks. finance trade.
ECAs or private insurers cover risks like Minimizes exporters’
Insurance political instability, insolvency, and currency exposure to international
issues. risks.
Sources of Credit
Credit is essential for businesses and individuals to fund various needs. The table below lists
the major sources:
Source Description Examples/Uses
Fixed-term or revolving credit loans with Term Loans, Lines of
Bank Loans
specified repayment terms. Credit.
Revolving credit with a pre-approved limit; Business and personal
Credit Cards
interest is charged on outstanding balances. expenses.
Allows deferred payments for Supplier Credit, Customer
Trade Credit
goods/services. Credit.
Peer-to-Peer Online platforms connect borrowers and Lenden Club, Funding
Lending individual lenders. Circle.
, Source Description Examples/Uses
Small loans for underserved communities Self-help groups, village
Microfinance
to encourage economic participation. development loans.
Loans or guarantees provided by
Government SBA Loans, Export Credit
governments to support businesses or
Programs Programs.
exports.
Venture Investors provide funds in exchange for
High-growth startups.
Capital/Equity business ownership stakes.
High-net-worth individuals funding
Angel Investors startups in exchange for equity or Seed-stage companies.
convertible debt.
Online platforms facilitate fundraising
Crowdfunding Kickstarter, Indiegogo.
from multiple donors/investors.
Retained Businesses reinvest their profits instead of Self-financing for
Earnings seeking external funding. growth/operations.
methods of payment in international business
Method Description Advantages Disadvantages Example/Use Case
Buyer pays upfront Minimal risk for High risk for buyer
Small, first-time, or
Cash in before goods are the seller as if the seller fails to
high-risk
Advance shipped or services payment is received deliver.
transactions.
provided. before dispatch. May deter buyers.
Seller is assured
Bank guarantees Expensive due to
payment.
Letter of Credit payment to the seller banking fees. Large international
Buyer ensures
(L/C) upon fulfillment of Involves complex contracts.
contract
terms. documentation.
compliance.
Banks facilitate Balanced security Less secure than
Documentary payment in for both parties. L/C. Medium-value
Collection exchange for More affordable Seller bears default transactions.
shipping documents. than L/C. risk.
High risk for sellers
Cost-effective for
Seller ships goods due to potential
buyers. Repeat
and grants the buyer non-payment.
Open Account Encourages buyers/established
deferred payment Payment delays
repeated trust.
terms. may affect seller
transactions.
cash flow.
Export Credits
• Definition: Export credits are financial tools provided to exporters to support the sale
of goods/services to foreign buyers by offering flexible financing options, reduced
risks, and extended payment terms.
• Importance: Facilitates smoother international transactions by reducing financial
burdens on buyers and ensuring payment security for exporters.
Types of Export Credits
Type Description Key Features
Supplier Credit extended directly by the exporter to the Exporter assumes all
Credit foreign buyer. payment risks.
Buyer Loan provided by a financial institution in the Often used for large
Credit exporter’s country to the buyer. transactions.
Methods of Export Credit
Method Description Benefits
Direct Loans provided directly by financial Ensures exporters get
Financing institutions to exporters or buyers. immediate payment.
Exporters receive payment upfront by Reduces exporters’ financial
Refinancing
transferring credit risks to banks. risks.
ECAs guarantee banks for loans provided to Encourages lenders to
Guarantees
exporters, reducing non-payment risks. finance trade.
ECAs or private insurers cover risks like Minimizes exporters’
Insurance political instability, insolvency, and currency exposure to international
issues. risks.
Sources of Credit
Credit is essential for businesses and individuals to fund various needs. The table below lists
the major sources:
Source Description Examples/Uses
Fixed-term or revolving credit loans with Term Loans, Lines of
Bank Loans
specified repayment terms. Credit.
Revolving credit with a pre-approved limit; Business and personal
Credit Cards
interest is charged on outstanding balances. expenses.
Allows deferred payments for Supplier Credit, Customer
Trade Credit
goods/services. Credit.
Peer-to-Peer Online platforms connect borrowers and Lenden Club, Funding
Lending individual lenders. Circle.
, Source Description Examples/Uses
Small loans for underserved communities Self-help groups, village
Microfinance
to encourage economic participation. development loans.
Loans or guarantees provided by
Government SBA Loans, Export Credit
governments to support businesses or
Programs Programs.
exports.
Venture Investors provide funds in exchange for
High-growth startups.
Capital/Equity business ownership stakes.
High-net-worth individuals funding
Angel Investors startups in exchange for equity or Seed-stage companies.
convertible debt.
Online platforms facilitate fundraising
Crowdfunding Kickstarter, Indiegogo.
from multiple donors/investors.
Retained Businesses reinvest their profits instead of Self-financing for
Earnings seeking external funding. growth/operations.
methods of payment in international business
Method Description Advantages Disadvantages Example/Use Case
Buyer pays upfront Minimal risk for High risk for buyer
Small, first-time, or
Cash in before goods are the seller as if the seller fails to
high-risk
Advance shipped or services payment is received deliver.
transactions.
provided. before dispatch. May deter buyers.
Seller is assured
Bank guarantees Expensive due to
payment.
Letter of Credit payment to the seller banking fees. Large international
Buyer ensures
(L/C) upon fulfillment of Involves complex contracts.
contract
terms. documentation.
compliance.
Banks facilitate Balanced security Less secure than
Documentary payment in for both parties. L/C. Medium-value
Collection exchange for More affordable Seller bears default transactions.
shipping documents. than L/C. risk.
High risk for sellers
Cost-effective for
Seller ships goods due to potential
buyers. Repeat
and grants the buyer non-payment.
Open Account Encourages buyers/established
deferred payment Payment delays
repeated trust.
terms. may affect seller
transactions.
cash flow.
