IMPORT FINANCING
TRADE FINANCE SOLUTIONS FOR IMPORTS
Import financing includes a range of trade finance methods we provide to finance import transactions. From import letters of credit and import bank guarantees, to invoice factoring and financial instrument monetization, we provide import financing that makes cross-border trade easier, more profitable, and less risky.
Import Financing Solutions
Import financing is a specialized Trade Finance Solution used to finance the purchase of goods which are being exported from one country for the purpose of being imported into another country. Import financing makes far more sense than paying cash in advance for goods, even if you have ample cash on hand because import financing provides additional benefits well beyond payment methods.
Import financing solves many of the problems you face when sending money internationally. When you involve us as a third-party financier we can provide guarantees to both importers and exporters that ensure honest and transparent transactions.
To meet the growing demand for trade finance and minimize the impact of the global shortage of trade finance, Virtual Financial LLC offers a range of import financing solutions that will enhance your ability to trade globally, improve your cash flow and make your business more profitable, while also mitigating risk.
We bring global experience, unparalleled underwriting expertise, and an impressive group of strategic partners to every deal, along with an expert deal team who work seamlessly to provide you the import financing your business needs.
Letters of Credit
Letters of Credit are the most widely used import finance method. They are versatile, secure and are used to finance any import deal making them very effective payment instruments.
Bank Guarantees
Bank Guarantees are instruments issued by banks that guarantee payment of the importer’s obligations to the exporter if the importer fails to make full payment under the contract.
Monetization
Bank Instrument Monetization converts or monetizes idle financial instruments into cash by liquidating them to provide capital for import financing with very little cost or risk.
Invoice Factoring
Invoice factoring is a common import financing method where the importer sells invoices or accounts receivable to a factoring company to raise cash that can be used to fund imports.
Import Financing Methods
Letters of credit are the most widely used type of import financing worldwide. Letters of Credit are financial instruments issued by an importer’s bank that authorize the exporter to withdraw funds from the bank under certain conditions. Letters of credit are issued in favor of a named beneficiary (the exporter), for a stated amount, and with a hard expiration date. Letters of credit specify the terms and conditions under which payment will be made.
In order to draw payment from the importer’s bank, the exporter has to provide documentary evidence that the goods have been shipped in accordance with the terms and conditions specified in the letter of credit. The documents required typically include an invoice or receipt for the goods and a bill of lading confirming that the goods have been shipped; insurance documents, inspection reports, and other export documents may be needed as well.
When an exporter presents correct documentation along with a demand to draw to the importer’s bank, the bank is obliged to pay, whether or not the importer has provided the funds to do so. Depending on the terms specified in the letter of credit, payment can be in the form of either a funds transfer known as a sight draft or a promise to pay which is known as a term draft.
A promise to pay often takes the form of a bill of exchange, which is a non-interest-bearing note requiring the issuer to make payment at a specified time in the future. Bills of exchange can themselves be used as a means of payment since they can be endorsed over to another beneficiary. They can, therefore, help to ease cash flow pressures for exporters.
Sometimes, a trusted third party – usually a major international bank – acts as guarantor for a letter of credit to protect the exporter in the event the issuing bank defaults on payment. These are known as confirmed letters of credit.
Letters of credit eliminate the obligation of the importer to pay for goods prior to shipping, since the importer’s bank in effect guarantees that payment will be made when documentary evidence that the goods have been shipped is received by the bank. Letters of credit eliminate much of the risk inherent in international trade but can be expensive, and if too tightly specified they can be difficult to enforce, which is likely to result in expensive legal battles.
A less expensive but slightly riskier form of trade finance for imports are Documentary Collections. In documentary collections, the sale of goods is settled by banks through the exchange of documents. The exporter provides documentary evidence to his bank that the goods have been shipped, usually in the form of a bill of lading. The exporter’s bank forwards the bill of lading to the importer’s bank and, in return, receives payment in the settlement of the invoice.
Settlement can be a funds transfer or a promise to pay, such as a bill of exchange. In documentary collection transactions the importer’s bank does not guarantee payment. If the importer does not accept the goods, the bank won’t pay. In documentary collections, title to the goods does not pass to the importer until payment has been made, so the exporter can recover the goods. However, recovering goods from locations in foreign countries can be difficult and expensive.