Little Guide to Trade Finance!
While it has become like a tradition that all sellers want to get paid as quickly as possible when they offer goods to the buyers, and buyers on the other hand prefers to delay the payment until they have received the goods and possibly sold and made profit before payment is done; this has been a trend in both domestic and international markets in the contemporary. However, in order to have your transaction managed through trade finance, read through this article and you will pick some important things that can be helpful.
What Is Trade Finance?
This is simply a method that importers and exporters used to finance their business. Trade finance is a technique that manages the risk associated with both international and domestic businesses especially when there are challenges of payment. Trade finance is also a term that signifies financing for activities to both domestic and international trade transactions. Trade transaction occurs when there is an exchange of money, good, and services between a seller and a buyer. It is important to know that trade finance can be facilitate by financial institution like banks; if you’re a trader and you don’t know about trade financing, definitely you’ve been missing a lot of benefits that will take your business to another level. Find out below some important information about trade finance, so you can understand it better.
Trade Finance Implementation Guide
It’s important to note that, to succeed through trade financing, there are things you need to know and possibly do, in order to be at the safer end. Below are some of them:
- Exporters should offer customers attractive sales terms
As an exporter who is trading his/her goods abroad, you will need to evaluate some things and make decisions that will bring you success. One of this things is to offer customers attractive sales terms that will be suitable for several payment methods.
- Choose the appropriate payment method
In international business there’s always a risk of not getting paid in time or not receiving goods in time. One of the ways to avoid that is by adopting an appropriate payment method that you know the receiver of the goods would not have issues with. This can help facilitate payment in full and on time.
- Exporters should know that any sale they make is a gift until payment is made
This may sound ridiculous, but in international markets it has always been like this and it will continue to be like this. The reason is simple; an exporter will sell goods to the buyer without getting paid until the buyer has confirmed that yes! Goods have been received and their qualities are accepted. The exporter is simply making a gift until the buyer pays for the goods.
- Importers should also know that any payment they make is a donation
Another mystery of international market is that importers should put it at the back of their minds that any payments they make for goods should be considered as a donation until the goods arrive.
- Know the different forms of trade finance
If exporters and importers can understand the different forms of trade finance, the risk involve in any of their transactions will be minimal and will help them formalize a commercial contract.
What Is The Ultimate Goal Of Trade Financing?
It’s good to understand that trade finance is part of transaction services that is offered by international banks, used as a payment instrument that help exporters and importers manage the risk involved in their daily transactions. The whole idea of trade finance came as a result of a situation whereby buyers will always want to make payment for goods they buy late until a confirmed received, and sellers will always want to get paid right away when they sell goods to the buyer. So, in order to help both parties have hope in the transaction, the international banks have adopted trade financing to offer invoice amount advances in transactions where the credit period is decided. This helps reduce lots of risk involve in international business.
Reason Why Trade Finance Is Important
- Trade financing is regarded as a supply chain and export finance, it has a great impact in driving economic development and also helps regulates the flow of credit in the business environment or supply chain.
- Trade finance can make importers ensure that the goods they ordered are delivered and have been financed.
- It helps improve the exporters’ working capital.