Supplier Credit Cover with the Involvement of Banks

Abstract

An exporter that has agreed on payment of the contractual price on credit terms in a commercial contract with a foreign buyer often needs money earlier than the date the foreign buyer’s payment becomes due. In such a situation, the exporter can contact a bank and offer to sell its claim against the foreign buyer to the bank at a discount. If the bank purchases the claim for payment, the exporter would receive the future payment immediately while the bank waits for the payment of credit to be made by the foreign buyer. The bank may decide to buy the claim from the exporter if it is satisfied the commercial transaction between the exporter and the foreign buyer meets its requirements. Before deciding, the bank assesses the foreign buyer’s ability to pay the credit and the exporter’s ability to perform its obligations under the commercial contract.