Import and export markets are progressively competitive since globalization is increasing, not decreasing, in developing nations. Finding an area of advantage is the goal of importers and exporters to increase sales. One fundamental part of this strategy is to have partnerships with flexible payment terms.
Sellers want to get paid quickly; buyers prefer delaying payment until they have resold the goods they purchased. In reality, payment takes longer for most products sold and shipped overseas.
Your import/export business has the greatest chance for success by solidifying the best overseas partnerships. While some trading companies are satisfied with one-shot, long-term success occurs with a steady stream of business. Generally, sellers need to make sure buyers are reliable. This requires due diligence in vetting buyers, along with careful financial management strategies to improve profit and loss balances.
Typically, you need a plan and strategy to identify target markets when importing and exporting goods. Additionally, specific product research on what is preferred in a particular country is also helpful. It is usually best to narrow product selections to a specific industry or category. Most trading companies manage to have buyers in place for import transactions; exporting might require a little more effort.
Careful calculations of your export pricing strategy can help your business realize a healthy profit margin. Otherwise, unforeseen costs with exporting can eat away profits.
During import/export transactions, it is ideal to have relationships with service providers such as freight forwarders and international financial institutions. Connections with the Trade Compliance Center will help with any barriers or unfair practices that your business may encounter.
In many cases, freight forwarders are your connection to having a smooth export transaction. These people make transportation arrangements to get your goods from point A to point B. The final destination is based on the shipping terms agreements, which could be a foreign port or a location that the buyer specifies.
Generally, products are most competitive on the global stage when you can reach favorable payment terms. Even with a similar product, you can quickly lose a sale when the competition has better terms.
There are situations as an exporter that you will need to finance the production of goods. Other aspects such as engineering modifications, promoting goods, and selling and shipping costs also need financing. Depending on the type of transaction, various sources are available for overall financing needs.
Establishing a relationship with a financial institution with an international presence is preferred, whether you are importing, exporting or both. Full-service trade support includes issuing letters of credit, credit assistance and trade financing.
Exporters assume certain risks in the way payments are made. Payment selection will depend on your familiarity with the buyer. For example, having an open credit account could be acceptable when the foreign buyer has good credit.
The costs of borrowing money to finance import or export transactions will vary. This includes insurance, fees and interest rates from your financial partner. Before sending a preliminary bill of sale to the buyer, make sure you understand these borrowing costs and how they can affect product pricing.
Length of terms will also dictate the costs, whether short, medium or long-term borrowing. Securing the best solution for your business and the buyer of goods you are exporting also depends on accurate understanding.
Risky transactions will increase costs. This is even true for domestic transactions. Your due diligence in building buyer partnerships has a direct effect on the likelihood of receiving payments. However, your financing partner also calculates political and economical stability – or instability – of the buyer's country before approving financing.
When importing or exporting goods, you interact with foreign suppliers that usually expect a letter of credit. This presents a challenge, especially for smaller companies, because traditional banks require collateral to secure the letter of credit.
On the other hand, buyers demand favorable payment terms when you are exporting goods to international markets. In the best case scenario, they will pay for shipped goods within two months. In the worst case, payments could take longer or never come. While it is nice to expect payment, your business may need cash today to cover current expenses.
You can meet import/export trade financing needs through purchase order finance. Basically, this solution finances pre-sold goods by issuing letters of credit that are very important to successful trade transactions.
The benefits to your business include:
Access to working capital is often the biggest limitation placed on import/export trading companies. Decisions about credit options and cash flow are made in real-time while competitors are looking for an advantage. While making important decisions about products, you must also decide on the best way to finance opportunities.
By nature, these decisions become more complicated to resolve smoothly when water separates the parties. A growing import/export company with large orders only intensifies the complications. What simplifies the process and your concerns about meeting demand is developing a partnership with a reputable factoring company that will help your sales grow.