The globe is shrinking and it sure is getting to be a smaller world by the day. Liberalisation and the Internet sweep, coupled with the WTO regime have together melted trade barriers and elevated it to truly global levels. Yet, an entrepreneur today who wants to export his wares, goes through a lot of uncertainty in taking the big step forward.

• How do I get familiar with the various international trade mechanisms?
• How do I assess the buyer?
• How do I follow up the payment, crossing the language and time-zone barrier?
• What if the buyer defaults in payment?
• What about the documentation?
• How do I minimise my risk and administrative burden?

If you are an SME who has not ventured into exports, dogged by these questions, Hope is at hand. For the first time, a premier financial institution has come to offer export finance through Forfaiting and Factoring, under one roof.   Global Trade Finance (GTF), India's leading export financing solution provider, has joined hands with indiamarkets, India's largest B2B electronic marketplace, to reach out specifically to the SMEs. GTF would leverage indiamarkets' tremendous reach, a fact enabled by its extensive on-ground network of 30 eBusiness centres in the prime industrial hubs across the country. For the SMEs, GTF provides the luxury of credit protection and management, buyer assessment, payment collection services and risk management services.

For the uninitiated, let us first define what factoring and forfaiting mean. Factoring is an export financing technique where an exporter of goods (service provider or contractor) sells his outstanding receivables to the bank (or some other financial institution), thereby transferring all the risk onto the bank, i.e., the buyer of receivables. Forfaiting, on the other hand, enables the seller to realise his cash transaction reduced by the agreed discount. To sum up, forfaiting and factoring are two instruments that free the exporter of the need for transaction surveillance and provide him with immediate cash funds.

As made obvious by the above definition, forfaiting and factoring promise to banish most of the worry wrinkles on an exporter's mind. It was to popularise this initiative that indiamarkets and GTF jointly held EASEXPORT, a seminar on factoring and forfaiting, at the indiamarkets eBusiness centre in Peenya here. The objective, made lucid by the very title of the seminar, was to make export easy for aspiring SME-exporters. Besides, the seminar brought together like-minded exporters and gave a platform for them to interact with each other as well as the `export experts'.

What enhances the comfort level of wannabe exporters is the credibility of GTF. Global Trade Finance Private Limited (GTF) is promoted by Westdeutsche Landesbank Girozentrale (WestLB), Germany, and the Export-Import Bank of India. International Finance Corporation (IFC), Washington, is the third shareholder in the company.
 

Ms Veena Mankar, takes on 'Forfaiting'

Ms Veena Mankar, MD, GTF, said in her presentation that the company aims to deliver to the SMEs, a comprehensive receivables management service through factoring and forfaiting. Taking on the concept of forfaiting, she explained that it enables an exporter to do business even in high-risk markets. In this, trade-related obligations due to mature at a future date are discounted "without recourse" to the seller for periods up to 10 years on a fixed rate basis. Finance is undertaken for those trade receivables, which are normally guaranteed by the importer's bank or an MNC.

Approved by the RBI, forfaiting uses normal documents associated with trade transactions, with the payment being guaranteed by any of the following negotiable instruments:

• Letter of Credit
• Promissory Notes

What is the information needed to initiate a forfaiting transaction?

• Country of destination
• Name of foreign buyer
• Name of guarantor
• Total amount of contract
• Term and repayment schedule
• Nature of goods to be exported
• Likely date of shipment

• Marketing advantage: GTF's service is available for buyers in over 80 countries (listed on the official website www.gtfindia.com)
• Reduced risk: Including Transfer Risk, Political Risk, Interest Rate Risk, Commercial Risk and Foreign Exchange Risk
• Improved cash flow
• Prompt indication of the cost involved
• Benefits to balance sheet: Receivables are replaced by cash
• Speed
• 100 per cent fixed rate financing

It was then the turn of Ms Hema Kapoor, Head-Client Relationship, to take the audience through the concept of factoring. Under factoring, GTF offers the following services, she said.

• Credit protection and management: Credit guarantee on payment default by the buyer. It also sets debtor limits and tracks changes in the quality of debtors.
• Finance: Up to 90 per cent of the invoice value, against submission of invoice and shipping documents.
• Collection services: This also includes follow-up for payments not received on due date. "We have our correspondent network in over 80 countries," Ms Kapoor stressed.
• Professional sales ledger and analysis

What's in it for the exporter?
Zero administrative hassles
Local contact to resolve admin issues: This gives the buyer the comfort that he is dealing with a local entity who is aware of the practices prevalent in the country.

Exports suited to factoring:
Exports that involve regular sales (of goods and services) to the same buyer(s) situated in a country covered by GTF.

What are the documents needed?
A Factoring agreement between GTF and the exporter. Thereafter, the trade documents themselves (invoice etc) are to be routed through GTF.

All in the export league.

Later, in response to a question by an aspiring exporter, Ms Mankar said there were certain items which would not lend themselves to factoring/forfaiting. For instance, it would be difficult to assess the quality benchmarks in perishable commodities such as vegetables, fruits etc, as against, say, capital equipment.
Replying to another query, she cited the example of an exporter who complained that "While negotiating the contract, the buyer at the other end spoke English, while no one in his office seemed to understand any English when it was time for payment"!
It is very critical for exporters, she noted, to also be aware of the political conditions, which is where the expertise of GTF holds value. Much before IMF's aid cut to Argentina hit newspaper headlines, GTF had warned its clients who were exporting to that country, she said.
At the end of the seminar, the delegates were asked to fill up a feedback form on the kind of information and services they were expecting from the GTF, the top countries they wished to export their goods to etc. A prominent ceramic tiles dealer in the Peenya industrial area, who did not wish to be named, said EaseXport had given him the "much-needed confidence to get started on granite export". "If my credit risk is minimised, the buyer assessed and the payment follow-up taken care of, what more do I need to fear?" said the excited dealer.
It was the reassured smile on the face of the delegate that made EASEXPORT and the indiamarkets-GTF venture worth it.

NOTE: EASEXPORT is soon scheduled to be held across many more locations across the country. If you too want to be a part of it, mail us at sandesh@indiamarkets.com with the following details filled in:
 

Name
Designation
Company
Address
Telephone
Fax
Email

Any feedback on this article may be sent in to Vasanthi Hariprakash at vasti@indiamarkets.com

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