FINANCING OF INTERNATIONAL TRANSACTIONS

Abstract

Financing (funding) is essentially the purchase of funds necessary for a business. This can be done from internal sources (company’s own funds) or external (borrowed funds). The high value of goods traded in international trade makes revenues generated from internal resources not sufficient to settle the value of the goods. Thus, it is frequent to resort to borrowed funds. In International Business Transactions, external financing is done both by classical techniques of credit (credit supplier and buyer credit) and modern techniques of financing (factoring, forfeiting, leasing) all trade tailored. In terms of the length of financing, accounting funding is short-term (1-12 months) and long-term financing (over a year). In principle, export and import operations prevailing short-term financing techniques, while international investment and industrial cooperation actions are specific long-term funding. Key-words: foreign trade, financing, loan, repayment Clasificare JEL : M40 1. Short-term financing techniques A correct financial policy has as main purpose the persuance of weight that financial funds have and the obligation in the total of resources of the economic entity 1 . Short-term loans can go to pre-financing operations, being related to production activities. Other loans are strictly related to an export operation and can be granted to producers and exporters or import-export trading companies. Pre-financing customized (specialized) loans are related to the manufacture and export of a strictly determined product. Such credits shall be granted for high value products with long manufacturing cycle. There are cases where specialized pre-financing loans are granted to exporting producers having a continuous flow of exports. Credits aimed at facilitating research of new markets by exporters. Advance on goods documents. In some countries, banks give loans to exporters on the basis of documents proving the existence of goods ready for export. Loan amount is proportional to the goods so pledged but not exceeding 80% of their value. Typically, these loans are granted to large exporters. A particular form of this type of loan is the loan based on warrants. The exporting company, based on mortgage goods, gives the bank a warrant which is a title of ownership of the goods and is negotiable. Therefore, banks can trade the title on the central bank. Advance in foreign currency is equally a short-term funding technique and a method of protection against currency risk. In essence, it is the granting of a loan by a bank to an exporting company based its claim against his client abroad, untapped debt in national currency. Bank advances through assignment of receivables. In some countries, banks provide facilities to exporters as if advances for replenishing their supplies of goods in short-term loans, by assigning claims by foreign importers. Assignment is made through a financial document disposal, under which qualify for an advance form of short-term credit to collect receivables from importers. The advance shall not exceed, as a rule, 70% of the bill. Discount loan is one of the most used techniques in short-term financing of exports. Usually, selling on credit is accompanied by issuing a debt instrument (bill of exchange, promissory note) the importer is required to pay, at maturity, the value of the goods. Discounting is the sale of a bank title before maturity. Discount’s goal is that the 1 Lesconi-Frumuşanu N.M., Breuer A., Lighezan Breuer B.G., Jurchescu D., Auto financing – the main source to finance an economic entity, Annals of DAAAM for 2010 & Proceedings of the 21st International DAAAM Symposium „Intelligent Manufacturing & Automation: Focus on Theory, Practice & Education”, 20-23 octombrie 2010, Zadar, Croaţia.