How to export: jargon buster

When starting to export, you may come across new and unfamiliar terms around the finance you need to secure. 

But you don’t have to navigate it alone. 

In this article we’ve collaborated with UK Export Finance to create a helpful jargon buster for those businesses looking to start exporting.

UK Export Finance is the UK’s export credit agency and a government department, and it has Export Finance Managers based across the UK who can help you understand the finance options available for your business’s specific needs. 

But first, let us demystify some common export finance terms so you can be prepared.

Bond

A bond is a type of financial security which is often used when agreeing payment terms for international trade. 

In its simplest form, someone who issues the bond owes a debt to the person who holds it. 

There are many different types of bonds involved in the trade cycle from winning to delivering an export contract. For example:

• a bid or tender bond may be required by the buyer for businesses to bid and win an export order.
• if the exporter requests a percentage of the contract payment in advance, the buyer may request an advance payment bond to protect themselves if the exporter fails to deliver once the export contract is awarded and signed.
• performance, maintenance, warranty, and retention bonds reassure the buyer that the exporter will fulfil the order within the time stated and to the agreed quality standards.

Bonds provide assurances to buyers that if the exporter fails to deliver, then the bond can be ‘called’ or paid out. 

Banks can issue the required bond on the exporter’s behalf, but they will likely require collateral (in the form of a cash deposit) to secure the bond, which can tie up the exporter’s cashflow. 

This is where UKEF may be able to assist with Bond Support Scheme.

Credit terms

The terms agreed between a buyer and seller for how and when payment is made, including the amount that must be paid upfront and when the repayments must start. 

International buyers may ask for extended credit terms – for example, requesting 90-day payment terms instead of a more standard 30-day arrangement - which can put pressure on a business’s cashflow as they wait for payment. 

‘Working capital’ facilities can help to relieve some of this pressure via loans from your bank.

A UKEF guarantee can help increase the amount they are willing to lend you.

Export credit agency (ECA)

Most developed and emerging economies have an ECA. 

Although structure and organisation differ, they all exist to promote exports by providing insurance, reinsurance and guarantees to exporters and banks on behalf of the state. 

UK Export Finance is the UK’s export credit agency.

Export credit insurance

covers a business against the risk of non-payment by customers under certain circumstances. 

When it comes to international trade, credit insurance can protect you from the risk of not getting paid by an overseas buyer, or in the event of political, economic or administrative events outside the UK that prevent payment being made in foreign currencies. 

Private market insurance brokers can offer these credit insurance policies. 

In instances where they may not be able to – because country limits have been reached, for example – UK Export Finance may still be able to offer cover, so it’s worth getting in touch.

Financial guarantee

A guarantee made by a third party to a lender that a debt will be repaid if the borrower defaults. 

A guarantee can increase the amount of risk which a lender is willing to take on, allowing them to release capital that they may otherwise not have been able to. 

Export credit agencies like UKEF can provide guarantees to lenders, which can help exporters access more working capital to fulfil orders.

Indirect exporter

You may already be an exporter and not even know it. 

If your business supplies materials to another business that exports an end product, you are an indirect exporter (a direct exporter is the business that ships the finished product to the international buyer). 

For example, if you provide screws or fasteners to a company selling machinery to an international buyer, you have indirectly exported.

Incoterms

Incoterms are an international shorthand published by the International Chamber of Commerce (ICC) which ensure the responsibilities, costs and risks of exporting products are agreed and recorded between the exporter and buyer. 

They’re typically recorded on your export invoices. 

An example of an Incoterm is EXW – a shorthand for Ex Works which signifies an agreement that the exporter will make the goods available at their premises and the buyer will cover the transport costs and risks of moving the goods to their final destination. 

Find current Incoterms on the International Chamber of Commerce website. 

For other terms related to the documentation involved in international trade, visit the Department for Business and Trade’s website.

Letter of credit

Used in international trade, a letter of credit is a commitment by the buyer’s bank to pay for the exporter’s goods when shipped. 

This letter is given to the exporter’s bank, which then gives the exporter protection against default by the international buyer.

Non-bank financial institution 

Abbreviated as NBFI, a non-bank financial institution does not have a banking license and doesn’t provide retail banking services but does offer a range of financial products and services, including loans and credit facilities. 

In addition to working with banks, UK Export Finance also works with NBFIs to support exporters with finance.

Protracted default

This is when the buyer fails to pay their contractual debt within a period calculated from the due date of the debt with no insolvency or dispute – the buyer simply doesn’t pay.

Trade and export finance

The range of finance, insurance and guarantees that make international trade possible. 
An export finance facility is an individual provision of support that helps your business fulfil its international orders. 

Learn more about Export finance.

Working capital

The capital that a business uses to finance its operations. 

It includes a business’s cash or inventory, and its liabilities. 

A common issue exporters face is when a buyer requests payment on delivery, but the exporter needs payment upfront to have the cashflow required to fulfil the order, meaning the exporter may turn down contracts that they can’t afford to deliver unless they are paid in advance. 

When it comes to international trade, there are a number of facilities that can help you access working capital – speak to your lender in the first instance to see what is available to you.

Learn more with our guide to working capital.

UK Export Academy

The UK Export Academy, launched in 2020, is a free online training program led by expert international trade specialists. 

It aims to equip UK businesses with the confidence and expertise needed to expand their sales of goods and services globally.

Now in its fourth year, the program has assisted thousands of UK businesses in accelerating their ability to sell products and services overseas. 

Through a comprehensive calendar of training events, the UK Export Academy helps businesses discover their export potential and enhance their knowledge of international trade.

The Academy also supports businesses in developing future export plans, offers networking opportunities with like-minded enterprises, and provides guidance on the next steps required to successfully enter overseas markets.

Find out more about the UK Export Academy with our guide.

How to get started exporting

Now that you’re up to speed with some of the terms of international trade, when you’ve got an export plan in place, reach out to your bank or an UKEF Export Finance Manager to find out about the support that may be available to your business. 

Learn more about exporting with our guide.