Trade Finance

Trade finance

Facing limited access to capital in their own countries, and unable or unwilling to borrow from local banks or other lenders, a growing number of companies overseas are seeking international trade finance from their US suppliers.

The most expeditious and economical way to offer international trade finance to a foreign buyer is for the US exporter to extend open-account payment terms (supplier credit) using its own export credit insurance policy. The exporter can carry the insured receivables on its own books or arrange trade financing with a bank or other lender.

Alternatively it may be possible to arrange a structured international trade finance facility under which a third-party lender will pay the suppliers’ invoices when the goods are exported and then extend payment terms (buyer credit) directly to the foreign customer. Buyer credit is available for well-established and highly creditworthy foreign companies.

Buyer credit

Export sales of all kinds of products and services are eligible for international trade finance, as long as the buyer is located in one of the many countries where Meridian does business.

The exported products can be manufactured in the USA or in another country. Likewise the goods may ship from the USA or elsewhere, although for some kinds of international trade finance the transactions may need to be invoiced by vendors located in the USA.

Meridian arranges buyer credit facilities that provide between $1 million and $30 million of trade finance. The buyer can utilize the credit for a single order or on a revolving basis, for purchases from a single vendor or from multiple suppliers. We have the capacity to support larger transactions, but for eight figures and above it’s more typical for Meridian to broker the requisite credit insurance and for a bank/lender to arrange the trade financing on its own.

Suppliers with smaller export sales volumes can use export credit insurance to extend international trade finance to a foreign buyer themselves, in some cases with no minimum line or individual transaction size.

How trade finance is structured

Under a structured international trade finance facility, payment terms extended to a foreign buyer are typically between 90 and 180 days for each export sale. Credit terms up to 360 days may be feasible for durable goods, some agricultural commodities, and other products with long economic life cycles. For capital equipment, export finance can be arranged for creditworthy buyers under loans or leases running five years or longer.

Once an international trade finance facility is activated, each time the buyer submits a purchase order to one of its suppliers it simultaneously signs a promissory note to a lender. The exporter ships the goods, presents documents, and gets paid by the lender. Then the lender gets paid back by the buyer in accordance with the terms of the promissory note and the underlying trade financing agreement.

If payment terms need to be extended to a foreign buyer directly by its suppliers, Meridian can arrange international trade finance between the exporters and a lender . . . under which the suppliers can sell the lender their trade receivables from the foreign buyer upon shipment and presentation of export documents.

In other cases it may be more practical to finance the foreign buyer’s trade payables instead of the suppliers’ receivables. The exporters may already be extending payment terms to the buyer but their lines may not be large enough for the buyer to place additional orders while current invoices are still open. Meridian arranges international trade finance facilities under which a buyer can select payables for a lender to settle early with the suppliers, freeing up supplier credit lines so the buyer can place new orders.

What information is required?

Structured international trade finance can be arranged only for large foreign companies with IFRS audited financial statements. Or if the facility qualifies for support from Ex-Im Bank or another country’s official export credit agency (ECA). While Ex-Im Bank underwriting typically requires longer turnaround times than private-sector transactions, Ex-Im Bank may be prepared to support international trade finance for smaller buyers, suppliers, and transaction sizes.

The first step in applying for international trade finance is to provide Meridian with the foreign buyer’s most recent audited financial statements, a list of the suppliers, and information about the underlying trade transactions.

Additional information we may require for international trade finance: interim financial statements, credit reports, bank and trade references, public records, market research, visit reports, and other due diligence.

Please note that when arranging international trade finance facilities we have a preference for situations in which the buyer and the suppliers already have a history of doing business together, whether on open-account credit terms or otherwise.

Import financing for U.S. companies

U.S. companies may face working capital challenges when importing goods from suppliers in other countries. Not so much if the suppliers offer payment terms long enough for the goods to be shipped, delivered, processed, and sold by the U.S. company. But many foreign suppliers don’t extend payment terms that long and some require cash upon shipment or even prior to shipment.

Even importers with bank credit lines may not be able to borrow under these kinds of scenarios because U.S. financial institutions typically won’t lend against inventory that’s not located in the USA . . . which isn’t the case for goods purchased from abroad until they arrive here 30 to 60 days later.

Meridian may be able to arrange supply chain finance for creditworthy U.S. companies’ purchases from overseas suppliers. Creditworthiness is assessed based on audited (or equivalent) financial statements, industry, time in business, prior borrowing/repayment performance, and other criteria.

Supply chain finance for U.S. importers comes in two forms: supplier credit or buyer credit.

Supplier credit is essentially non-recourse factoring of the overseas supplier’s receivables. Some overseas suppliers may be prepared to offer U.S. importers open-account payment terms if they know they’ll be able to sell/discount their accounts receivable without recourse immediately following shipment (i.e., presentation of their invoice and bill of lading).

Buyer credit is an unsecured trade loan. The overseas supplier’s invoice gets paid at whatever time (before, upon, or after shipment) is instructed by the U.S. importer, who then has up to 120 days to repay the loan. Buyer credit may be more expensive than supplier credit.

The minimum transaction size for either of these kinds of financing is $250K. There’s no practical maximum deal size, other than as limited by the U.S. importer’s creditworthiness. Payment terms are typically not longer than 120 days. The transaction currency must be USD.

Why you should work with Meridian

Over the past 25 years Meridian Finance Group has helped hundreds of companies increase their export sales using foreign buyer credit facilities, export credit insurance, and other international trade finance tools.

While we’re proficient at using Ex-Im Bank programs and other conventional international trade finance techniques, many of our transactions are structured using alternative methods we’ve formulated ourselves by working with a wide range of countries, buyers, exporters, lenders, and underwriters.

Most trade finance transactions require export credit insurance. Meridian’s combined expertise in brokering credit insurance and arranging international trade finance makes us the most effective credit insurance broker in the market for exporters and for the banks/lenders that fund their international sales.

We understand your business. Our staff is multicultural and multilingual, with experience not only in international trade finance and credit insurance but also exporting, manufacturing, operations, logistics, and global distribution.

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