ABC Exports Ltd. is planning to export readymade garments to gulf and European Countries. The company is anxious to know the financial feasibility of the proposal and also interested to know the various sources of financ

Financing international trade is a complex process, involving many variables, ranging from corporate policy and marketing strategy to exchange risk and general borrowing conditions. The reason behind the complexity of financing international trade is that trade involves two countries with different currencies and jurisdictions. In addition, payments must be made at a distance and across time, so the exporter, the importer, or both need credit during part or all of the period from the initial manufacture of goods by the exporting firm to the time of the final sale and collection by the importer. The main objective of a good corporate export financing policy should be financing the greatest possible amount of sales with the greatest possible management simplicity and with minimal risk. Following are among the important considerations in the choice of a strategy for trade financing: Nature of goods: Capital goods usually require medium to long-term financing while consumer goods, perishable products, etc. require short term finance. The nature of the relationship between the exporter and the importer. For example, if both are members of the same corporate family (affiliated to the same MNC) or have had a long standing relation with each other, the exporter may agree to sell on open account credit while absence of confidence may require a letter of credit. The availability of various forms of financing, government regulations pertaining to the sale transaction, etc. Companies often need financing to market, promote and manufacture their products and services. The financing needs of companies involved in international trade transactions are usually categorized as follows: (a) Pre-shipment financing: this is financing for the period prior to the shipment of goods, to support pre-export activities, such as wages and overhead costs. It is especially needed when inputs for production must be imported. It also provides additional working capital for the exporter. Pre-shipment financing is especially important to smaller enterprises because the international sales cycle is usually longer than the domestic sales cycle. Pre shipment financing instruments can take the form of short-term loans, overdrafts or cash credits; (b) Post-shipment financing: This is financing for the period following the shipment of goods. The competitiveness of exporters often depends on their ability to provide buyers with attractive credit terms. Post shipment financing thus ensures adequate liquidity until the purchaser receives the products and the exporter receives payment. Post-shipment financing is usually short-term.