German firm comes up with export finance offer

http://www.theindependentbd.com/business/finance/83160-german-firm-comes-up-with-export-finance-offer.html

German firm comes up with export finance offer
Author / Source : Sherpa Hossainy

Dhaka, Dec 4: While booming export is becoming Bangladesh’s bedrock for a strong economy, it comes with an irksome catch for exporters — getting the pay for shipped goods. Several international payment methods are in practice, but in most cases, cash is hard to come straightaway. In case of deferred payments, the wait could be as long as 180 days.

To give exporters a respite, a German-based trade financing company, DS-Concept Factoring (DSCF) has introduced a new concept in Bangladesh — factoring, which helps exporters get paid in a quick, secured and hassle-free way.

Factoring is a financial transaction where a business job sells its accounts receivable (invoices) to a third party (factor) at a discount. The factor provides financing to the seller of the accounts in cash, often 70-85 per cent of the purchase price of the accounts, with the balance paid upon collection. Factoring differs from a bank loan — the emphasis is on the value of the receivables, whereas a bank focuses more on the value of any borrower’s total asset.

“Our core business is to buy receivables. We buy deferred letters of credit (LCs) and change them into sight LCs,” said Alexander Pinkas, managing director of DSCF.

In a deferred LC, payment is done after a fixed number of days after shipment or presentation of prescribed documents, whereas a sight LC is payable immediately once it is presented along with necessary documents.

“A lot of export businesses are also made in contracts nowadays in Bangladesh. Importers are providing a 20 per cent down payment in advance and want to close the invoice while it’s matured, which could take 30 to 120 days,” Pinkas said.

Pinkas said small and medium companies face problems because banks don’t allow them to have back-to-back (two LCs used together to help a seller finance the purchase of equipment or services from a subcontractor) facilities.

“We take 20 per cent down payment, open a sight LC to the exporter and the remaining 80 per cent is paid from the importer after maturity.”

Describing factoring’s advantages, Pinkas said this trade tool eliminates nagging negotiations about credit periods with suppliers, the administrative efforts to open LCs and carrying out documentary collections. “Exporters immediately receive 80 per cent of the invoice value after shipment has been made and the remaining 20 per cent balance on maturity of the invoice. This enables exporters to receive discounts from suppliers as they have sufficient liquidity,” he said.

After making a contract with the exporter, DSCF makes a credit worthiness check of the importer through Euler Hermes, one of the biggest backup insurance companies worldwide, who has access to profit and loss statements as well as yearly bank statements of the companies.

“We provide transparency and security for the exporters as they know if they are exposed to risk or not. We guarantee 100 per cent payment even if the importer goes bankrupt,” Pinkas said. He said DSCF clients are also connected to its legal department in case there is any dispute. “When we buy the receivables the exporter is released from the deferred payment as we pay at sight. Whenever the importer goes bankrupt we will not collect the money from the exporter as payment is covered through Euler Hermes.”

DSCF, headquartered in Mönchengladbach in Germany, was founded in 2000 and presence in the USA, Turkey, Bulgaria, Egypt, Pakistan and the UAE. The Bangladesh operation started in 2008 and DSCF is now doing business with sixteen companies.

“Our real operations started two years ago, and up till now we have provided $15 million in credit,” he said.

Pinkas said DSCF has chosen Bangladesh because it is an emerging market, where exports are booming and more exporters need intelligent cash solutions. Currently DSCF is financing shrimp and garments sector as two stalwarts of exports in Bangladesh. Besides the company is financing bicycle export (German-Bangla bike) and some other buying houses such as ZXY Ltd. Recently DSCF also signed a contract with a German importer who delivers goods to Karstadt, a big chain store in Germany.

However, Pinkas said DSCF doesn’t have any priority while financing exports. “Every export is possible to finance.

It could be porcelain, tableware or food, wherever there is deferred payment, we can take care of it.” DSCF starts providing service from $50,000 up to $40-50 million, which means besides small and medium exporters big corporations can also avail credit from us, he said.

Factoring is still a new concept in international trade and very new in Bangladesh, Pinkas said. “Factoring as a trade finance tool immerged in the USA and it is very common there. But in Bangladesh we are the only factoring company.” Pinkas believes there is a great chance for factoring business to flourish in Bangladesh but the unfamiliarity with the concept poses a big hurdle. Bangladesh has a lot of potential for this business but sometimes we face a lack of knowledge about international trade, he said.

Despite being a fairly new concept, factoring has been in existence for a long time in some other shape or form in the world of trade.

The DSCF managing director opined that some export finance policies and practices are holding back exports from Bangladesh in a certain way.

“Bangladesh is still one of the last countries where payment of exports is requested through letter of credit. Some policies have to be eased for exports to register more growth,” he said.

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