You received a huge foreign order—thrilling? Then the reality strikes you: you require money to produce and export the products before receiving payment. That cash flow shortfall is where trade credit turns out to be a lifesaver.

Yet, obtaining trade credit is not a matter of asking for an advance. A number of Indian SME exporters are deprived because of a lack of information or not meeting lender standards. Let's deconstruct it simply and practically then and facilitate getting the funds you require.

What is Trade Credit & Why Do SME Exporters Need It

Imaging trade credit to be a "pay later, buy now" plan for export units. They get to sell merchandise without needing upfront payments so you can get operations running easily without depleting your working capital.

Significant Advantages of Trade Credit:

• Improved Cash Flow: Avoid locking up the working capital till you receive cash.

• Improved Customer Relations: Purchasers enjoy concessionary payment schedules so you remain the supplier of choice.

• Expansive Business at a Swifter Pace: With more cash in hand, more orders, and larger transactions follow.

For Indian SME exporters, trade credit is not an option—it's a requirement for expanding operations and competing on a global scale.

Top 3 Ways to Get Trade Credit for SME Exporters

1. Supplier Trade Credit – Obtaining Improved Terms of Payment

Numerous exporters negotiate longer terms of payment from their suppliers rather than paying their supplier in advance. This indicates that you'll be able to obtain the raw materials, produce the product, and arrange shipment before paying your supplier.

How to Persuade Suppliers to Grant Credit:

• Establish a good payment history with small orders prior to requesting extended terms.

• Provide post-dated cheques or part payments in advance as collateral.

• Employ third-party trade credit insurance to assure suppliers of payment risk.

Risks and Precautions:

• Delays in payment can impact supplier relationships.

• If the buyer defaults, you still have to pay the supplier.

2. Bank-Supported Trade Credit – Letter of Credit (LC) & Bill Discounting

Trade credit facilities such as Letters of Credit (LCs) and Bill Discounting are provided by banks to assist exporters in cash management.

Letter of Credit (LC):

• Promise from the buyer's bank that they will pay you on fulfillment of shipment conditions.

• Facilitates trust with overseas buyers, lessening payment risk.

Export Bill Discounting:

When you have already dispatched goods but are yet to receive payment, banks will disburse to you the amount against your export bill.

Assists exporters in receiving immediate liquidity instead of waiting for payment cycles.

3. Government Schemes – ECGC & MSME Loan Programs

In order to assist SME exporters, the Indian government offers trade credit support through Export Credit Guarantee Corporation (ECGC) and MSME-specific loan schemes.

ECGC – How It Assists:

• Offers insurance cover for exporters against buyer default.

• Facilitates exporters in obtaining bank credit more easily.

MSME Trade Credit Programs:

• Interest subvention schemes reducing borrowing costs.

• Collateral-free business loans for small exporters.

For SMEs finding it difficult to get credit from conventional banks, government-backed schemes provide a simpler and more secure means of raising funds.