The basics of export finance and risk cover

Assessing creditworthiness

When agreeing payment terms for an export transaction, it is important for Swiss companies to assess the creditworthiness of a foreign business. It can be difficult to do this from a distance. The first step is to look at the commercial register – an extract from the commercial register does not guarantee a company’s creditworthiness, but if there is no entry available, that should certainly ring alarm bells.

Through its local offices, Switzerland Global Enterprise often has access to additional databases or knows which agency is able to provide the most reliable credit checks in which country. Therefore, it can be worthwhile to contact S-GE to find out whether you are dealing with a known business partner and how you can most easily verify the company in question. This is very easy if you have the commercial register number or tax ID.

It should be noted here that ratings are more useful in some countries than others. A lower rating does not always mean that the company is in financial difficulty. In some countries, it is quite possible for distribution companies to reduce their risk exposure by using a wide network of legally independent structures for their business operations. In this situation, the creditworthiness of an individual company may not be representative of the entire organization. For this reason, results should not be considered conclusive, but they do give you an initial insight into your business partner’s financial situation.

Payment terms

Depending on your business model, your relationship with your foreign partner, the size of the transaction concerned and local customs, different methods of payment and trade and project financing have proven efficient. Payment in advance may be a good option for new business relationships and smaller amounts until both parties can record a positive balance of payments. For many foreign companies, especially those outside Europe, it is standard practice to require full payment in advance for a delivery.

Advance payment is not practical for larger transactions, but in this situation a bank, an export credit agency or another institution can provide financing. Many financial service providers offer not only financing but also related cover against risks such as non-payment and currency risks.

Banks vs brokers and digital financing providers

When it comes to export finance, companies usually turn to their own bank, but their bank may not always be willing to finance the deal. If you are with a smaller bank, it may not have the foreign partners it needs to offer this kind of service. Larger banks usually have a more extensive international network but they are not always willing to work with SMEs. This is especially true if the SME is not already a customer. It is always worth contacting various banks, especially those that have experience of trade finance in the relevant region and with SMEs.

Regardless of their negative image, brokers can also sometimes help in your search for the right solution for your export finance. The best brokers have good links with banks and are familiar with common financing solutions. They can recommend appropriate solutions and are transparent about their brokerage fees.

Digital services are also growing in popularity. Here, we need to differentiate between marketplaces that aggregate and broker the services of banks and other financial service providers, and fintech companies that offer their own financing. In the last case, it is important to remember that the sector is still very new and this comes with certain risks.

Brokers, digital marketplaces and online financial service providers are easy to find online. Always check their ratings, references and company history!

 Trade finance instruments

Banks offer a wide range of export finance products and products to mitigate the risk of non-payment, as well as expert advice on their pros and cons, including:

• Letters of credit (LC) (import LC, export LC, standby LC)
• Supply chain finance (SCF)
• Cash against documents
• Overdraft facilities
• Pre-export finance
• Buyer credit
• Credit to the buyer’s bank
• Supplier credit
• Working capital loans
• Receivables discounting and forfaiting
• Import and export credit
• Bank payment commitments
• Credit lines and surety credit (guarantees)
• Mezzanine financing

In addition to these instruments, there are also various trade finance products available which are not arranged via banks and also aim to preserve the company’s liquidity and decrease payment risks.

• Factoring
• Intercompany trade credit (based on either a current account or advance payment)
• Export credit insurance from private insurers (usually for shorter-term financing)
• Export credit insurance from public export credit agencies such as SERV, Swiss Export Risk Insurance. SERV’s products help exporters to reduce the risk of non-payment with export credit insurance or a guarantee. These instruments typically insure against non-payment by the import company and against political risks. Banks may also require export risk guarantees for certain international trade transactions to mitigate the risk of default by other banks or customers. The solutions offered by SERV also help companies to take out low-interest loans (SERV’s AAA rating) or to obtain greater credit limits. SERV is an institution under public law that is owned by the Swiss Confederation.

In addition to SERV, the Swiss government also supports the Innosuisse agency (for SMEs, start-ups and other Swiss organizations with R&D activities) and the Repic platform (promotion of renewable energy, energy and resource efficiency promotion in developing and transition countries). These organizations can offer financial support for Swiss companies in their fields, including for international activities.

Leasing programs as an alternative: What to consider

Leasing is gaining in popularity and is an attractive option for buyers and sellers thanks to its cost-effectiveness, flexibility and availability compared to traditional bank financing. Many banks have their own leasing programs. Local leasing companies also exist in many countries, offering local buyers programs for imported equipment, particularly in the aviation, energy, mining, construction, transport, pharmaceutical, forest and fishing industries. To reduce the risk, exporters should insist on advance payment three to four months before delivery for leasing offers.

Delivery on credit

After a number of successful transactions with a customer have been completed and a trusting relationship has been established, Swiss companies may consider delivering goods on credit with the aim of increasing sales. This should be approached with caution and should only happen after careful consideration and a series of successful payments. 

Currency regulations

Many countries have stricter currency regulations than Switzerland. If your foreign business partner requests additional financial documents that you had not previously heard of, this is likely to be due to local regulations. Ask for an example if needed, or discuss their requirements the first time you are faced with such a request.

Additional information:

Information on export finance and risk cover (SECO SME portal with general information)

Trade finance solutions – Commerzbank

Trade and export finance | UBS Switzerland

Trade finance: Secure import and export finance (zkb.ch)