Buyer credit vs supplier credit

In buyer credit, a third-party financial institution lends to the overseas buyer whilst the exporter receives immediate payment. In supplier credit, the exporter extends repayment terms directly or via a guaranteed arrangement. The choice determines the transaction structure, risk allocation and availability of officially supported cover.

Export credits take one of two principal forms. The distinction shapes how risks are borne, how each party to the transaction receives liquidity, and what conditions govern the commercial terms.

Buyer Credit: Third-Party Lender Arrangement

Buyer credit places the financing obligation on a commercial bank or other lender, with official support channelled through a guarantee to that lender rather than a direct loan to the borrower.

Under a buyer credit structure, the bank lends to the overseas buyer or the buyer's bank. The exporter is paid as though the transaction were a cash sale, receiving proceeds either immediately upon shipment of goods or performance of services. The buyer then repays the lender over an agreed term, typically two years or longer.

The exporter thus achieves immediate cash without warehousing the credit risk. The overseas buyer gains extended repayment terms. The lender accepts the credit risk, supported by an official guarantee from the export credit agency.

UKEF's Buyer Credit Facility exemplifies this structure. The facility requires the buyer to contribute a minimum of 15 per cent of the contract value from its own resources. UKEF then guarantees a loan of up to 85 per cent of the contract value. The loan is typically repaid in equal instalments over the agreed term. For transactions subject to OECD Arrangement disciplines (those with repayment terms of two years or more), maximum repayment terms extend to 15 years, with up to 22 years available for climate-eligible transactions.

Buyer credit requires the exporter to be established in a supporting jurisdiction (in UKEF's case, the United Kingdom) and the facility applies a minimum contract value threshold. For UKEF, this threshold is GBP 5 million. The lender must be an acceptable credit institution willing to extend the financing. Loans are available in major trading currencies as well as over 60 local currencies, reflecting the international scope of export contracts.

Supplier Credit: Direct Exporter Financing

Supplier credit involves the exporter extending credit terms to the buyer or backing the buyer's credit arrangements through a financial institution. The exporter retains the credit risk, though this risk can be transferred to a lender and then covered by an official guarantee.

UKEF structures supplier credit in two forms. The first operates similarly to buyer credit but applies to lower transaction values, typically below GBP 5 million. Under this structure, a bank lends to the buyer, and UKEF guarantees the lender, but the transaction originates as an exporter-driven financing decision rather than a buyer-initiated bank facility.

The second form is the bills and notes supplier credit facility. Here, the bank purchases receivables from the exporter, bills of exchange, or other documentary evidence of the buyer's payment obligation. UKEF then guarantees the bank for the amount due. The exporter is paid as soon as goods have been shipped or services performed, receiving proceeds from the bank rather than the buyer. The buyer repays the notes over time, at fixed or floating rates, through the bank.

In supplier credit arrangements, the exporter's immediate access to cash mirrors that of buyer credit; the buyer obtains extended terms in both cases. The structural difference is that the credit decision and initial financing relationship originate from the exporter and the supporting lender, not from a buyer-initiated bank facility.

OECD Arrangement Governance

Both buyer credit and supplier credit fall under the OECD Arrangement on Officially Supported Export Credits. The Arrangement applies to all officially supported export credits with repayment terms of two years or more.

Official support takes two forms. Financing support includes direct credits to foreign buyers, refinancing, or interest rate support provided by the government or official institution. Cover support includes export credit insurance or guarantees issued by an export credit agency to cover credits extended by private financial institutions.

The Arrangement establishes maximum repayment terms for official cover. These disciplines ensure that official support does not distort commercial pricing and competition across export transactions.

Risk Allocation and Deal Structuring

The choice between buyer credit and supplier credit reflects different risk preferences and transaction circumstances.

Buyer credit suits transactions where the buyer seeks independent financing from a commercial lender without relying on the exporter's creditworthiness. The buyer's bank conducts its own credit assessment of the buyer, separate from any evaluation of the exporter's financial position. The export credit agency's guarantee protects the lender against buyer default and, where applicable, sovereign risk or political events in the buyer's country.

Supplier credit suits scenarios where the exporter has confidence in the buyer's ability to pay or where the exporter's own credit standing materially improves the terms available to the buyer. The exporter's willingness to carry or guarantee the credit can be a competitive advantage. Supplier credit also enables smaller exporters to extend terms without requiring a buyer-initiated bank facility, broadening access to export credit support.

In practice, the choice often reflects market conventions in the export sector, buyer preferences, and the exporter's balance sheet capacity. Large capital goods exporters may use buyer credit as their standard mechanism to decouple their credit risk from the transaction. Smaller exporters or those in sectors where buyer relationships are paramount may structure supplier credit to retain closer control over payment terms.

Compliance and Documentation

Both structures require compliance with the exporter's jurisdiction's sanctions screening, anti-bribery standards, and environmental and social due diligence frameworks.

Documentation differs slightly. Buyer credit involves a direct loan agreement between the lender and the buyer or buyer's bank, with the export contract and the guarantee from the export credit agency forming supporting instruments. Supplier credit involving bills of exchange relies on the documentary evidence of the buyer's obligation; the bank's role is to acquire and hold these instruments whilst the export credit agency provides a guarantee. Both require that the underlying export contract be genuine and commercially substantive.

The distinction between buyer credit and supplier credit shapes deal structuring, guarantee documentation, and the assignment of credit risk between parties. Both serve the same economic function: enabling the exporter to access immediate cash whilst offering the buyer extended payment terms under internationally agreed lending disciplines. The choice depends on transaction size, the buyer's banking relationships, the exporter's own financial position, and the sectoral conventions governing the export contract.