Exporters are constantly being confronted by new, infuriating risks. Political turmoil including skyrocketing inflation, unexpected foreign exchange restrictions, protective tariffs, customers that are unable or unwilling to pay, not to mention natural disasters. All of these scenarios can result in payment defaults.
The best bank for export financing? LBBW.
It has been voted the best export finance bank in the EMEA region by 150 leading exporters around the world. For this purpose, LBBW received the Regional Exporters' Choice Award, awarded by the Trade Information Export Trade and Export Finance Service.
Letters of credit
Around 80% of LBBW customers secure their international business exposure using letters of credit. There are three advantages to letters of credit: They are highly standardized, they are recognized everywhere in the world and they offer a high level of protection – for both parties. The letter of credit – an obligation to pay – is issued by the importer's bank; in other words, the bank assumes responsibility for the debt amount.
Buyer's credit is a loan to companies abroad (the "buyers") to finance capital goods and assets. In many developing and emerging countries, buyer's credit is imperative for a contract to be concluded in the first place – with exporters often having to offer buyers a finance facility at the same time. The loan model is
- Immediate payout
- Easy to process
- No risk
Exporters can also sell their receivables without recourse to LBBW. Forfaiting gives you immediate liquidity while also releasing you from debtor risk. If there is a default on payment, LBBW does not make any claim against the exporter. "À forfait" meaning without recourse. Forfaiting is a good option particularly for companies that offer their customers generous payment periods without wanting to restrict their liquidity. All exporters know that the length of the payment period is often the deciding factor as to who gets an order – or whether the transaction goes ahead at all.
The benefits of forfaiting:
- Immediate monetary funds
- No currency risk
- Export financed through debt
- Optimization of the balance sheet structure
- Fixed calculation basis
- Reduced administrative costs
Export credit agencies
In addition to letters of credit, buyer's credit and forfaiting, exporters often use the services of export credit agencies (ECAs) such as Hermes export credit guarantees issued by the German Federal Government. In this case, it is the Federal Government that assumes the risk of a payment default – but only for transactions with customers in particularly high-risk countries.