21 October 2009 | Paul Snell
The UK government has launched a scheme to help domestic vendors secure payment from foreign importers.
The "letter of credit guarantee scheme" has been organised by the Export Credit Guarantees Department (ECGD), the government agency charged with supporting UK suppliers to win overseas business.
The ECGD has secured agreement from five UK banks - Barclays, RBS, HSBC, Lloyds TSB and Standard Chartered - to work with overseas banks to guarantee payment to UK exporters.
It is hoped the move will boost trade by giving UK suppliers confidence they will get paid for goods and services sold abroad. It has been set up to fill the gap left by the lack of credit insurance or insurance against non-payment and will run until 31 March 2011.
Under the programme, UK banks will guarantee payment from the buyer to the exporter, so long as documents demanded in the letter of credit - such as commercial, shipping or transport information - have been presented to it by the buyer's bank abroad.
"Letters of credit are a very well established method of securing payment and an alternative to credit insurance," said Lord Davies, UK minister for trade.
A total of 282 overseas banks are involved in the scheme to support buyers in the following 36 countries: Algeria, Azerbaijan, Bahrain, Bangladesh, Brazil, China, Croatia, Egypt, Ghana, India, Indonesia, Jordan, Kazakhstan, Kenya, Korea, Kuwait, Libya, Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Panama, Peru, Philippines, Qatar, Russia, Saudi Arabia, Sri Lanka, Taiwan, Thailand, Tunisia, Turkey, UAE and Vietnam.
The scheme will not cover exports to the EU, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland or the US, because this would require state aid approval from the European Commission. The ECGD adds that it is uncommon for buyers in these countries to use letters of credit in any case.
The British Exporters Association has today published advice on how suppliers can raise finance. The guidance explains how vendors can write contracts to lessen their need for external finance, as well as the pros and cons of different financing.