A buyer's credit is a loan facility extended to an importer by a bank or financial institution to finance the purchase of capital goods or services and other big-ticket items. Buyer’s credit is a very useful mode of financing in international trade, since foreign buyers seldom pay cash for large purchases, while few exporters have the capacity to extend substantial amounts of long-term credit to their buyers.
Buyer's Credit is the product of Working Capital Finance.
Working Capital Finance
Each business has its own unique set of requirements so we have a dedicated team of experts who work with you to understand the specific nature of your business and structure solutions most suitable for you. We offer a complete bouquet of working capital facilities to help you manage your cash flow and ensure the smooth running of your business.
A working capital loan is a loan that has the purpose of financing the everyday operations of a company. Working capital loans are not used to buy long-term assets or investments and are instead used to cover accounts payable, wages, etc. Companies that have high seasonality or cyclical sales cycles usually rely on working capital loans to help with periods of reduced business activity.
Features and benefits:
- Quick and hassle-free process
- Customised and flexible financial solutions
- Customer-oriented services
Buyer's Credit Terminology
A buyer’s credit facility involves a bank that can extend credit to the importer, as well as an export finance agency based in the exporter’s country that guarantees the loan. Since buyer’s credit involves multiple parties and cross-border legalities, it is generally only available for large export orders, with a minimum threshold of a few million dollars.
Buyer’s credit benefits both the seller (exporter) and buyer (importer) in a trade transaction. The exporter is paid in accordance with the terms of the sale contract with the importer, without undue delays. The availability of buyer’s credit also makes it feasible for the exporter to pursue large export orders. The importer obtains the flexibility to pay for the purchases over a period of time, as stipulated in the terms of the buyer’s credit facility, rather than up front at the time of purchase. The importer can also request funding in a major currency that is more stable than the domestic currency, especially if the latter has a significant risk of devaluation.
The buyer’s credit process typically has the following steps: The importer enters into a commercial contract with the foreign supplier with clarity that specifies the capital goods or services being supplied, prices, payment terms, etc. The buyer obtains credit from a bank or financial institution to finance the purchase. Once the exporter ships the goods, the lending bank pays the exporter as per the terms of the contract with the buyer. The buyer makes principal and interest payments to the lending bank according to the terms of the loan agreement until the loan has been repaid in full. The advance can be availed for a specific term usually six months and then can be rolled over for another six months with maximum roll over upto three years.