How Export & Import Finance is Going To Change Your Business Strategies

How Export & Import Finance is Going To Change Your Business Strategies

03 Oct 2018 06:20 PM

Export & Import Finance

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:

  1. Accounts Receivable Financing: An exporter that needs funds immediately can obtain a bank loan that is secured by account receivables.
  2. Letters of Credit (L/C): It provides guarantee to the exporter that, provided the goods and/or services are delivered to the importer according to contractual terms and with the compliant documents it will be paid by the bank that issued that letter of credit.
  3. Banker Acceptance (BA): It is a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank.
  4. Working Capital Financing: Bank provides short term loans to finance the working capital cycle.

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

  • Helping Businesses Obtain Supplier’s Credit- In this area, the experts of trade finance aims at helping companies receive fast supplier credit without paying a high rate of interest to a bank they have selected to apply for supplier’s credit to make important import payments. More than 100+ banks offer financing options to SMEs and MSMEs against Letters of Credit (LCs) of Indian banks. Rather than simply relying on one bank, it is better to refer to the quotations from different banks. The key is to check the rates offered by different banks and not depend on one bank to avoid paying more, when they have an option to select the lowest rate offered by multiple banks. Once, the lowest rate is selected or query related to this area is clarified with the trade finance experts of Myforexeye, Supplier’s Credit without any delay is processed. Thus, corporate can be rest assured to apply for supplier’s credit in quicker response time and make payments for shipments without paying a high rate of interest.

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.

  • Helping Businesses Obtain Buyer’s Credit- Here too, like supplier’s credit when buyers are looking out for assistance to quickly obtain buyer’s credit against Standby Letters of Credit (SBLCs) to finance the import payments, one needs to go through the quotes from various banks. Buyers’ Credit quotes can be received from Myforexeye to make an informed decision in selecting the lowest rate for the credit obtained. Experts from Myforexeye will aid clients to derive import finance that results in quicker response time, lower interest rates as well as minimum arrangement fee and improve convenience so as to execute the import transactions.
  • Assisting the Businesses in Export Factoring- With foreign trade increasing in India, export factoring is fast becoming universally accepted and vital to the financial needs of the small and medium- sized businesses. If executed properly, export factoring can help businesses gain competitive edge in the complex world markets.

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.

  • Helping Export LC Bill Discounting- Discounting of Letter of Credit is a short term credit facility that’s provided by the banks to the beneficiary. Bank purchases the documents or bills of the exporter (beneficiary) after he fulfils certain compliances. On fulfilling all these compliances, the bank makes them the payment.

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

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