Import and export financing is much different, for example, than commercial lending, mortgage lending or insurance. There is a longer order-to-delivery cycle on products that are sold and shipped overseas, therefore, it takes longer to get paid. Extra time and energy are required to make sure that buyers are reliable and creditworthy. Careful financial management can mean the difference between profit and loss on each transaction.
All sellers want to get paid as quickly as possible, while buyers usually prefer to delay payment, at least until they have received and resold the goods. This is true in domestic as well as international markets. Increasing globalization has created intense competition for imports and exports. Importers and exporters are looking for any competitive advantage that would help them to increase their sales. Flexible payment terms has become a fundamental part of any sales package.
- Selling on open account, which may be best from a sales standpoint, places all of the risk with the seller. The seller ships and turns over title of the product on a promise to pay from the buyer.
- Cash-in-advance terms place all of the risk with the buyer as they send payment on a commitment that the product will be shipped on time and it will work as promised.
To address these trade financing risks, there are two broad categories of trade finance:
- Pre-shipment financing to produce or purchase the material and labor necessary to fulfill the sales order.
- Post-shipment financing to generate immediate cash while offering payment terms to buyers.
Here are some additional thoughts to consider:
Financing can make the sale. Favorable payment terms make a product more competitive. If the competition offers better terms and has a similar product, a sale can be lost. In other cases, the exporter may need financing to produce the goods or to finance other aspects of a sale, such as promotion and selling costs, engineering modifications and shipping costs. Various financing sources are available to exporters, depending on the specifics of the transaction and the exporter’s overall financing needs.
Financing costs will vary. The costs of borrowing, including interest rates, insurance and fees will vary. The total cost and its effect on the price of the product and profit from the transaction should be well understood before a pro forma invoice is submitted to the buyer.
Financing costs increase with the length of terms. Different methods of financing are available for short, medium, and long terms. Exporters need to be fully aware of financing limitations so that they secure the right solution with the most favorable terms for seller and buyer.
The greater the risks, the greater the cost. The creditworthiness of the buyer directly affects the probability of payment to an exporter, but it is not the only factor of concern to a potential lender. The political and economic stability of the buyer’s country are taken into consideration.
So where can you turn for import and export financing solutions that help address these concerns?
Logistics Plus (LP), in strategic partnership with WorldBusiness Capital Inc. (WBC), provides a complete, logistics and financing solution for both U.S. and foreign companies. WBC is a commercial finance company that offers flexible term loans helping small and midsize businesses compete in the global marketplace. Our motto is “financing business across borders,” and the programs available include all of the following:
- Emerging Market Projects. Term loans for businesses and projects throughout Latin America, Asia, E. Europe, and Africa.
- U.S. Equipment Exports. Term loans for overseas buyers of new U.S.-made equipment, technology, and services.
- U.S. Trade Capacity Expansion. Term loans for U.S.-based commercial and industrial projects boosting trade competitiveness.
- Foreign Investment in U.S. Term loans for acquisitions, operations, joint ventures, and distribution in the U.S.
- Foreign Sales to U.S. Term loans for U.S. purchases of new foreign-made equipment, technology, and services – with specialized solutions for India-U.S., Mexico-U.S., and Turkey-U.S. transactions.
If you’d like to learn more about LP/WBC import and export financing solutions, please click the button below to request more information.