Small and medium-sized export companies believe export values will increase this year
Finnvera’s new Receivables Purchase Guarantee speeds up the financing of small export transactions
Half of Finnish SMEs engaged in exports believe that the value of their exports will rise this year. Equally many companies will also increase their investments in internationalisation. These are some of the findings of the SME Barometer Survey that was conducted this spring. The survey encompassed about 4,800 companies, of which 1,100 operate on the international market. However, export companies still face challenges in arranging financing for small export transactions and protecting themselves against export risks. In order to speed up financing, Finnvera has introduced a new Receivables Purchase Guarantee to complement the Bill of Exchange Guarantee and the Export Receivables Loan, which were launched a year ago.
The Receivables Purchase Guarantee is typically applicable to continuous exports with a short payment period, when the export products are, for example, consumer goods, raw materials, services or semi-finished products. Finnvera bears the risks associated with financing and the bank is protected from the eventuality that the buyer fails to pay the invoice on the due date. The guarantee is granted directly to the bank that purchases receivables from its own client, i.e. the exporter, in connection with foreign trade.
- The instruments used for financing small export transactions should be as simple and easy to use as possible for both the exporter and the bank. We continuously strive to develop our products so that banks would find it easy, with the help of our guarantees, to offer financing for even small export deals. For products aimed at contracts of under two million euros, Finnvera bears more of the risk itself and, by relaxing the terms, strives to speed up financing and promote the business opportunities of Finnish export companies irrespective of their size, says Minna Lindqvist, Development Manager at Finnvera.
New products reduce the exporter’s and bank’s risk
Both the Receivables Purchase Guarantee and the Bill of Exchange Guarantee enable the exporter to grant payment time to the buyer while receiving the money for the transaction on cash terms. Both guarantees protect the bank against credit risks associated primarily with the buyer and the buyer’s country. A Bill of Exchange Guarantee can be granted for a payment period of up to five years and it is well suited, for instance, to an individual capital goods transaction, such as exports of machinery or equipment, whereas the Receivables Purchase Guarantee is suited to short payment periods. The products complement each other. For instance, Finnvera does not grant Bill of Exchange Guarantees for exports to Russia, but a Receivables Purchase Guarantee may be granted for this purpose.
The Bill of Exchange Guarantee was launched a year ago, and its use is gradually increasing. Applicants for the guarantee include large, small and midcap companies that have exported primarily to European and South American markets. Calculated on the basis of the applications, the average contract value has been EUR 1.3 million. So far the smallest contract guaranteed by a Bill of Exchange Guarantee has been valued at EUR 200,000.
Only one in three export companies protect themselves against risks
The new products also provide exporters with additional means of protecting themselves against risks associated with export trade. According to the SME Barometer, Finnish SMEs export goods and services abroad at a high risk. As many as two thirds of export companies trust their customers’ ability and willingness to pay so much that they do not protect their sales receivables.
This is the case even if a single credit loss may at its worst endanger the future of the entire company, especially if the company is just starting exports. Protection against export risks is also important now when exports are gaining momentum and the economy is at a very promising stage.
- The more important and more tailored the transaction is for the company, the more crucial it is to protect receivables. We encourage export companies to contact us at an early stage of business negotiations if something about the export transaction puzzles them. We are glad to advise about selecting an applicable financing solution. Our goal is to help Finnish companies of all sizes to win contracts and protect themselves from risks associated with exports, says Lindqvist.
Minna Lindqvist, Development Manager, Finnvera, +358 50 5267 639, firstname.lastname@example.org
The SME Barometer
The Federation of Finnish Enterprises, Finnvera and the Ministry of Economic Affairs and Employment jointly conduct an SME Barometer Survey twice a year. The barometer for spring 2017 is based on responses given by about 4,800 SMEs throughout Finland. Nearly 1,100 of the respondents are active on international markets.