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Import-export financial tools

Import-export: secure your business


Developing internationally implies great rigor in the choice of financial instruments for trading with partners located in other countries. Currency risk cover, documentary credit, incoterms - discover the tools to secure your import and export business.

Import-export financial tools

In an export process, 2 steps require special attention. First prospecting which requires resources to study the target market and find potential business partners, then payment for orders delivered to new customers.

The entrepreneur in the first case can call on specialized organizations, such as COFACE, to obtain prospecting aids. In the second, the possible means of payment must be studied in depth to choose the one that provides the most security while being suitable for its customers.

Conventional tools such as checks are generally to be banned. For certain transactions SWIFT transfers may be suitable. Most of the time, to get paid, the exporting company uses so-called "cash on delivery" techniques . This is the case with documentary credit, which is widely used in international relations. This financial instrument guarantees payment to the seller and delivery of products in accordance with the buyer's order.

Whether it is a question of export or import, embarking on an international trade strategy is not without risk. The entrepreneur has every interest in guarding against these threats which weigh on the commercial development of his activity.

How the documentary credit works

Definition of documentary credit

Documentary credit is a tool for carrying out import and export transactions.

The buyer gives the order to his bank to pay a beneficiary (the exporting seller), the amount corresponding to the sales contract in exchange for the delivery of documents proving the shipment of the goods, object of the contract. The issuing bank performs this transaction through another bank (the notifier). 

an order confirmation: The buyer undertakes to take a voluntary step. He must obtain an opening request from his bank. 

on the seller's side, the Crédoc is a financial contract which must comply with the commercial contract. 

buyer's bond. They are by nature irrevocable. The issuing bank is required to honor its commitment until the date of validity entered if all the documents given to it are strictly in accordance with what is requested on the original of the letter of credit. Note that the issuing bank must pay whatever happens. 

Like any solution, it has drawbacks. It is in particular dependent on the speed of routing of the goods, the time of documentary journey. Furthermore, it does not guarantee the political risk of non-transfer of currency.

Currency risk hedging

Particular vigilance is required when questions of currency exchange come into play that he sells or buys abroad. Although the introduction of the euro has limited the problem of exchange risks within the EU (and for good reason, with a few exceptions only one currency is used) the risk is present as soon as a company trades with other countries.

What are the means to cover yourself? There are several mechanisms for hedging the exchange risk : forward selling which concerns the exporter rather, forward purchasing a technique used by the importer, SWAP, Matif (futures market for financial instruments), l exchange option (moderately paying a premium, the beneficiary reserves the right when the time comes to take the real price of the currency or to take the option that corresponds to the price guaranteed by the bank).

Incoterms to secure exchanges

Doing business internationally involves codified language and precise contractual terms between the various international partners. Incoterms provide a framework, but above all codify rights and duties allowing to secure transactions between sellers and buyers. Depending on the term chosen, everyone knows their obligations and those of the other party.

EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ, DDU, DDP ... Regulars of international transactions are necessarily aware of this instrument for securing exchanges that are the incoterms. For the uninitiated, this term comes from: INternational COmmercial TERMS and governs several aspects of the commercial and financial relations between two partners located in different countries.

This tool nevertheless focuses on the parts related to delivery. The scope only takes into account physical products and not services. Each term generates costs and risks for both the buyer and the seller. This tool should, therefore, be perfectly mastered, given the challenges of international transactions.


Import-export financial tools Import-export financial tools Reviewed by communication etiquette on 1:48 PM Rating: 5

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