Across the world, the cross –border trade (import and export) is rapidly growing and in a world that is increasingly connected. It has become easy to purchase products from almost anywhere in the world. Globalization has further helped in the trade of goods and international trade also has become easy with import and export companies coming up with innovative ways to ship products throughout the world. The best thing with the ease in trade is that customers do not have to wait for long for the delivery of goods and services.
Nonetheless, import and export companies still face big financial challenges. With so much trade done locally and internationally, so much can go wrong. This is the reason that if trade finance is not managed properly, the import and export industry can rest assured to not just lose but lose big. Further, small enterprises are not well acquainted with the additional financial risks of both exporting and importing goods as well as services from foreign countries. Say, from fluctuating currencies to the increased pressures of a global supply chain to the difficulty of determining a foreign partner’s creditworthiness.
Export and Import Finance is a finance method that fulfills the funding gap between receiving goods and sending payments for importers and exporters. Sellers look for immediate payments whereas buyers prefer to delay payments because access to working capital is biggest financial limitation for most export and import companies.
Advance payments terms are risk for the buyer since there is no guarantee that seller will send the product of good quality and on time. Likewise, selling on credit to the buyer is riskier for the seller because buyer might default on the payments.
Export and import financing offers a way to mitigate these financial risks. There are several reasons to use Export and import financing for the growth of their business.
1. It is much easier for negotiation of convenient terms of transaction when finance constraints are not a factor.
2. It prevents working capital cash flow problems for both exporters and importers.
3. It provides convenient repayment periods between 30 to 90 days for importers.
4. Obtain financing that is less expensive than local financing which may be subject to restrictions.
5. Exporters receive payment upon shipment of goods.
6. Exporters can avoids credit, currency and interest-rate risks in the settlement period.
Export and Import Finance Methods:
Trade finance offers a way to mitigate some of these risks. Put simply, small businesses engaged in international trade are well acquainted with the additional financial risks of exporting or importing goods and services from foreign countries. Differing currencies to the increased pressures of a global supply chain to the difficulty of determining a foreign partner’s creditworthiness. Trade finance offers a way to mitigate some of these risks and makes it possible for the importing and exporting of goods and services internationally as well as foreign investment.
One of the challenging areas, international import and export companies face, is getting proper guidance in trade finance and that too getting it timely. Now for any enterprise, their aim is to do constant and immediate business and for this, they need to get timely stock, is not it? They do need to manage their trade and stay updated on the trading market cycle. Such helps them acquire financing and loans trouble-free; know on the currency volatility, the multiple ways of money transfer, changes in custom duty, fuel prices and other independent variables, clearance of procedures and taxes.
Among all these factors, when it comes to exporting goods, the legal system is an important one. It also implies the safety system of a certain country that one wants to trade with. You should stay informed regarding government laws for goods safety, especially when you export foods. Some regulations might delay the export-import process and create issues for both you and the local importer. The most important problems of import and export come from a bad legal system in one country or another. One might be restricted when it comes to advertising the goods or quantity that you want to export.
Some countries have a complex bureaucratic system which requires a variety of documents and certificates. One might need to obtain certain licenses and permits when one exports to certain countries for the first time. While the majority of them are a one-time deal, they also need to be renewed. It actually depends on the system the country of destination has. One needs a certain export document just to be able to get the goods out of your country, a separate document that is needed to be importing them into another country. All of these documents can delay in availing import and export finance to make payments and even block it if one does know the legal norms. This is why having an expert on the matter can be crucial.
Services from Myforexeye for Enterprises
Clients who wish to obtain fast supplier’s credit from banks can drop in a query to access instant quotes of lowest rates offered by different banks and get in touch with the Trade finance experts for further discussion.
Export factoring implies purchase, funding, management and collection of short term accounts receivable based on goods and services offered to the foreign buyers. Goods are delivered on open account credit terms without securing by any payment instrument. In this area, Myforexeye Experts offer attractive terms from multiple factors based on qualifying conditions of buyer ratings, seller ratings and country export ratings.
Many transactions, and especially large sums of money, depend on a certain level of trust with the counterparties involved. Throughout the years, as economies and businesses expand, the trust required for these transactions is more difficult to obtain, which is why instruments of Trade Finance comes at play.
Each of these trade finance tools has its own unique pros and cons for those engaged in international trade. Application of export finance helps on providing payments, financing and risk mitigation solution in support of the transactions between exporters and foreign buyers. For the SMEs, export finance holds extreme importance, as it assists them to strategically increase their participation in international trade. However, cost and access to finance are vital factors which especially determine the export capability of SMEs.
The level of risk and amount of moving variables involved in trading overseas is ever present. However, advisory firms use the application of certain import finance instruments which can help protect businesses in adopting risk management steps.
The business strategies can be aligned along the export and import financing techniques and work towards reducing the financing cost of export or import.
Read more about international trade and finance
10 Dec 2019 05:19 PM
Most of us understand the importance of the global interest rate benchmark LIBOR – London Inter-Bank Offered Rate, especially when millions of dollars are benchmarked against it for decades since 1984.
29 Nov 2019 02:16 PM
Ideally a trade constitutes a foreign exchange transaction but currency can be traded without any underlying which makes it a risky proposition.
26 Nov 2019 12:29 PM
Foreign exchange risk is a financial risk which exists when a home currency is converted into another during the transaction.
14 Nov 2019 02:54 PM
A foreign exchange transaction is recorded in the books of accounts at an exchange rate though the payment is made at a different exchange rate. This leads to transactional foreign exchange loss or gain.
07 Nov 2019 10:48 AM
Modern foreign exchange market started its shift from a fixed exchange rate to a floating exchange rate system. Thus a global decentralized, over the counter (OTC) market for trading of currencies evolved which determines the forex rates.
29 Oct 2019 05:00 PM
Trading in the financial markets is what increases the volumes especially when some markets are open across the borders over different time zones. Each market has its underlying asset which is tradable over the exchange.