International Finance/Short-term Financing
Module 7: Short-term Financing
This area of financing provides many options for an exporter and in some cases desirable financing options for an importer. It is important to remember that all options carry risk and the greater the risk the higher the cost. When evaluating risk, the associated costs must be a factor in the cost equation. The financing tools that have been presented in other sections merge at this point into potential financing options. These options include financing from vendors (suppliers), banks, insurance (making receivables eligible for financing), standby letters of credit (to provide credit terms from a seller), commercial letters of credit (under acceptance financing), government programs (pre- and post-shipment financing options) and documentary collections (under extended payment terms with an accepted draft). These options are tied to inventory and accounts receivable which are short- term in nature and turn over within a six- month period, or in some cases up to one year. Careful examination of these options is necessary to select the right option for the right price and risk level. This module will introduce you to the forms and functions of short-term financing: credit insurance, government-supported finance, discounting, time-draft letters of credit, and the Export Working Capital Program.
If you are not familiar with the basic accounting terminology covered in this module (accounts receivable, debit, credit) you need to review a basic accounting book to familiarize yourself with the terms. You will find reference to letters of credit and a variety of other payment terms covered in detail in Module 4: Payment Methods.
About this Resource
These resources were developed by MSU Global with funding provided by a U.S. Department of Education, Business in International Education Title VIB grant.