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International Focus
Alternatives for Financing International Transactions
Securing financing for international equipment transactions is just as important for export success as the sales
cycle itself. Although each international market has unique challenges, one common critical element is securing
financing that (1) minimizes the transaction’s risk and (2) completes the transaction.
Because risk mitigation is a priority for equipment manufacturers, they will rarely provide customers with open
accounts. On the other hand, consumers are just as reluctant to assume the entire risk of a transaction by
participating in cash-in-advance transactions. Therefore, more moderate financing methods are often chosen.
Financing Options
Short- and medium-term financing options that minimize risk for manufacturers exporting equipment are available from
both private companies and through the U.S. government-supported Ex-Im Bank. Medium-term transactions for equipment
manufacturers typically are valued at $10 million or less and are from three to five years.
For risk mitigation in short-term transactions, especially repeat parts sales with revolving balances, a multi-buyer
risk mitigation insurance policy enables the equipment manufacturer to offer buyers open-account terms.
Multi-buyer insurance also allows exporters to meet the terms of the competition and increase capital goods sales by
offering extended terms for products needing longer payment tenors.
With a multi-buyer policy in place, the exporter can economically wrap the transaction with insurance and sell it to a
financial institution. This allows the manufacturer to take the receivable off his books without recourse to his
company.
Other Alternatives to Lessen Risk
There are also some alternatives for supplying on-site products for international transactions, such as:
- Ship products to a bonded warehouse or free trade zone – collect payment at time items are released and
taxed.
- Floorplan with local agent – Mitigate risk with insurance until they are sold.
- Leasing companies – Private companies and government agencies that purchase products and lease them to
customers are an alternative for selling units into international markets.
These tips come from a 2002 AEM e-seminar presented by Johnnie VanGelderen, export manager at
Astec, Inc., Chattanooga, Tennessee.
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