How to reduce financial risk when trading overseas

At Highlands and Islands Enterprise (HIE), we work with UK Export Finance (UKEF), the government’s export credit agency. Their mission is to support UK exports by sharing financial risks that the private sector is unable or unwilling to accept on its own.

They have their own risk assessment framework and our work with them is focused on helping UK exporters maximise opportunities to expand international sales.

To qualify, the goods and/or services businesses are exporting must have a minimum of 20% of contract value being UK content, and this can include design work or consultancy services.

How their role has changed

Previously, the UKEF (when named the Export Credit Guarantee Department) only dealt with insurance policies and bank guarantees for exporters of capital goods and capital services only.

However their remit has now increased to cover all sectors and all exports, not just capital goods and capital services. Helping smaller and medium sized business plays a big part in UKEF’s role today.

Insurance against risk

UKEF provides a range of support services to minimise your financial risk, including:

Export Insurance Policy

  • This is an insurance against risk of not being paid or not being able to recover costs of performing an export contract due to specified events.

  • All sectors can be covered up to 95% of the contract value. This product does not cover exports within EU (except Greece) or certain OECD rich countries, such as USA, Canada, Australia, etc. under a two year risk horizon.

Contract Bond Support Scheme

  • UKEF can provide guarantees to a participating bank where there is a requirement under the terms of the contract to provide a bond. All types of contract bonds are covered.

  • UKEF will guarantee up to 80% of the value of the bond to the bank. This lessens the amount of security required by the bank for issuing the bond and thereby releases important working capital to the exporter.

  • There are no minimum or maximum contract values or duration.

Export Working Capital Scheme

  • UKEF can provide guarantees to banks to cover the credit risks associated with working capital facilities in respect of a specific export order.

  • UKEF can take up to 80% of risk through this bank guarantee.

  • The maximum value of the finance must be no more than 75% of the export contract value and advances must only be used for the purpose of paying or reimbursing the exporter for expenses incurred performing that contract.



 

Letter of Credit Guarantees

  • UKEF can provide between 50-90% guarantee to a UK bank on a confirmed letter of credit. The confirmed letter of credit gives the exporter a double guarantee – one from the importer's issuing bank and a confirmed letter of credit from a UK confirming bank.

  • With a UKEF guarantee in place the UK bank is able to confirm a letter of credit even if it does not have the risk appetite on the foreign issuing bank.

  • This product does not cover exporting within EU or certain OECD countries such as USA, Canada, Australia, etc.

  • An important point here is that the exported goods must touch UK shores.

Buyer Credit and Supplier Credit Facility

  • Last but not least, UKEF can provide guarantees to a bank that makes a loan to an overseas buyer for capital goods and/or capital services.

  • The buyer credit facility is designed for contracts in excess £5m and involves a loan agreement between the lending bank and the foreign customer. UKEF’s guarantee is to the lending bank.

  • Under a supplier credit facility the bank providing the loan is responsible for documentation so the guarantee is conditional on that documentation being effective. This facility is for contracts below £5m.

  • UKEF can provide a bank guarantee up to 85% of the contract value. We can also look at providing guarantees under Bills of Exchange or Promissory notes.

Together with UKEF, HIE are committed to helping businesses grow by accessing overseas markets and our team of exporting experts are on hand to help with any enquiries and to offer the advice and support businesses need to achieve their business objectives.

International Trade Webinar: UK Export Finance – helping make exports happen

This short webinar will look at the work of our industry-qualified Export Finance Advisers in providing firms with free, independent support and information.

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