Lesson 9 - Export Finacing

L/O/G/O
International Payment
EXPORT FINANCING
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Contents
ü Foreign bill discounting
ü Factoring
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Foreign bill discounting
Concept:
An accepted draft or bill of exchange sold for early payment to a bank or

credit institution at less than face value after the bank deducts fees and
applicable interest charges. The bank or credit institution then collects full
value on the draft or bill of exchange when payment comes due.
=> The product aims to meet the short-term financing requirement of

exporters under the usance L/C
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Target Customers
1. Exporters have limited working capital, they have to develop business

through rapid capital turnover;
2. Exporters encounter temporary difficulty in capital turnover between receipt

of acceptance/confirmation/guarantee of payment from foreign banks and
collection;
3. Exporters discover investment opportunities between receipt of

acceptance/confirmation/guarantee of payment from foreign banks and
collection, and the yield is higher than the discount rate.
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1. To issue a bill, present it for
acceptance.
2. To accept it.
3. To sell it to the discounting
house.
4. To pay the amount (Less than
the face value).
5. To present it for payment at
maturity.
6. To pay the face value.
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Convention :
• F: is face value.
• r: is discount rate.
• t: is days to maturity and excluding the expiry date.
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Example 1: Assume the time from acceptance to maturity on a
$2,000,000 banker’s acceptance is 90 days. Further assume that the
importing bank’s acceptance commission is 1.25 percent, and that the
market rate for 90 days BAs is 7 percent.
Determine the amount the exporter will receive if discounting the BA with
the importer’s bank ?
Example 2: The time from acceptance to maturity on a $1,000,000

banker’s acceptance is 120 days.
The importer’s bank’s acceptance commission is 1.75 percent and the
market rate for 120-day BAs is 5.75 percent.
What amount will the exporter receive if discounting the BA with the
importer’s bank ?
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Example 1:
If the exporter holds the B/A to maturity, he will receive:
$1,993,750 = $2,000,000 x [1 - (0.0125 x 90/360)]
The acceptance commission is $6,250.
If the exporter discounts the B/A with the importer’s bank, he will receive:
$1,958,750 = $2,000,000 x [1 - ((0.07 + 0.0125) x 90/360)]
Example 2: If the exporter discounts the B/A, he will receive:

$975,000 = $1,000,000 x [1 - ((0.0575 + 0.0175) x 120/360)].
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Factoring
Concept:
A factoring house, or factor, is a bank or a specialized financial firm that

performs financing through the purchase of invoices or accounts
receivable.
Export factoring is offered under an agreement between the factor and

exporter, in which the factor purchases the exporter’s short-term foreign
accounts receivable for cash at a discount from the face value, normally
without recourse.
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Factoring
Features:
• Factoring is suited for continuous short-term export sales of consumer goods
on open account terms.
• It is an option for small and medium-sized exporters, particularly during
periods of rapid growth, because cash flow is preserved and the risk of non-
payment is virtually eliminated.
• It is unsuitable for the new-to-export company as factors generally (a) do not
take on a client for a one-time deal and (b) require access to a certain volume
of the exporter’s yearly sales.
• It is generally a more expensive option that may erode a significant amount
of an exporter’s margin.
• The advance rate is generally limited to 80 percent of invoices that are
factored. 5/31/2023 10
Factoring
Convention :
• r is factoring rates.
• t is days to maturity and excluding the expiry date.
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Factoring
An exporter sells $100,000 worth of invoices to a factor for receiving
80% of the face value within 24 hours. The factor’s fee is $3,000 on
these invoices that are paid in 30 days, the tendency is to take the 3%
factoring rate.
What amount will the exporter receive ?
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Factoring v.s Bill discounting
BILL DISCOUNTING FACTORING

Bill is separately examined and Pre-payment made against all unpaid
discounted and not due invoices purchased by
Factor
Financial Institution does of not have Factor has responsibility of Sales

responsibility of Sales Ledger Ledger Administration and collection
Administration and collection of of Debts
Debts
No notice of assignment provided to Notice of assignment is provided to

customers of the Client customers of the Clien
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STATISTICS
BANK EAST ASIA AND PACIFIC ECONOMIC
UPDATE APRIL 2018
WORLD BANK
Enhancing Potential
© 2018 International Bank for Reconstruction and Development /

The World Bank
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
• Growth in developing East Asia and Pacific accelerated slightly in
2017. The region continued to be a major driver of global growth.
• At an estimated rate of 6.6 percent in 2017, developing EAP is once
again the fastest-growing region in the world for the first time since
2014.
• Growth in the region strengthened marginally to 6.6 percent in
2017, slightly higher than earlier expectations.
• Growth in several major regional economies (China, Malaysia,
Thailand, Vietnam) surpassed expectations, reflecting recovering
global demand, higher commodity prices, benign global financing
conditions, and robust domestic demand.
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
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STATISTICS
• The global technological cycle has driven faster exports of
machinery, electronics, and integrated circuits.
• China, Malaysia, and the Philippines are among the top 10 exporters
of integrated circuits and semiconductor devices.
• While their share in global markets is relatively low, exports of
broadcasting equipment, computers, and other final electronic
products represent more than 10 percent of total exports in Vietnam,
Thailand, the Philippines, and Malaysia.
• In 2017, year-over-year export volumes accelerated to 20.7 percent in
the Philippines, thanks to the hike in international demand for
integrated circuits, computers, and other electronics, which represent
more than half of its export basket.
• Similarly, Malaysia benefited from the boost in global semiconductor
sales (21.9 percent increase
5/31/2023 year-over year in October). 28
STATISTICS
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STATISTICS
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STATISTICS - VIETNAM
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STATISTICS - VIETNAM
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PROBLEMS
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L/O/G/O
Thank You!
5/31/2023 34

Lesson 9 - Export Finacing

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Lesson 9 - Export Finacing

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L/O/G/O

ü Foreign bill discounting

An accepted draft or bill of exchange sold for early payment to a bank or

=> The product aims to meet the short-term financing requirement of

1. Exporters have limited working capital, they have to develop business

2. Exporters encounter temporary difficulty in capital turnover between receipt

3. Exporters discover investment opportunities between receipt of

Example 2: The time from acceptance to maturity on a $1,000,000

Example 2: If the exporter discounts the B/A, he will receive:

A factoring house, or factor, is a bank or a specialized financial firm that

Export factoring is offered under an agreement between the factor and

• t is days to maturity and excluding the expiry date.

What amount will the exporter receive ?

BILL DISCOUNTING FACTORING

Financial Institution does of not have Factor has responsibility of Sales

No notice of assignment provided to Notice of assignment is provided to

© 2018 International Bank for Reconstruction and Development /

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