A confirming house is effectively an agent for an overseas buyer. The confirming house, acting for the buyer, places an order with an exporter and deals directly with the exporter to complete the contract. In this case there is no international credit risk or financial burden for the exporter, because the confirming house gives short-term credit to the international buyer who pays a commission for the services provided. A specialized form of a confirming house is a buying house, which makes purchases, for example, in the UK for international retailers and other international purchasers.
In instances where the exporting company sells only occasional large value capital or semi-capital goods abroad, it may be appropriate to use an export finance house to handle the contract. This type of organization is particularly useful where a buyer is being supplied by a number of companies, none of which wishes to assume responsibility for arranging the financing for the contract. The export finance house provides cash to the exporter on shipment, and credit to a buyer. It deals with the credit assessment of a buyer and takes out insurance as appropriate. If a buyer defaults there is no recourse to the exporter.
Export houses do not directly finance export orders, but they indirectly provide a source of credit. The use of this export mode is related to the discussion of market entry modes in Chapter 4. The export house will act either as an export merchant, buying and selling goods internationally, or as an export agent where an exporter receives payment for goods upon shipment and the export agent provides credit to the international customer, promotes the goods abroad, holds stock in the domestic market, and even acts as a complete export sales department.
Countertrade can be regarded as a means of financing exporting activities, especially in new or emerging markets. It involves barter, which is the direct exchange of goods without transfer of funds, and the more frequently used counter-purchase. This is an arrangement whereby an exporter, in part or in total consideration for goods exported, contracts to purchase goods from the end-user.
Most of the methods so far discussed for financing export are suitable for periods of up to 2 years. Beyond that timescale there are other methods which a company can consider. These will now be outlined.
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