Trade Finance - the key elements.
There are two key elements to Trade Finance:
- Improving Cash Flow
- Managing Payment Risk
When assessing the risk of a particular international transaction there are a number of factors which you will need to consider - the status of the customer; can they pay on time; can their government
generate the necessary foreign exchange and is the customer/country in a growth or decline cycle. In other words, in seeking credit information you are trying to build up an overall picture. In most cases an exporter has regular customers and regular markets.
Country and customer information should be updated on a regular basis.
Since the debt crisis in the 1980's, the risk associated with exporting to particular countries has achieved greater significance and should be amongst the first checks that an exporter should conduct. The risks would include - non transfer of hard currency, debt moratoria or re-scheduling, imposition or cancellation of import licences, expropriation of assets, political unrest (war, internal conflict, coups de'tat etc.).
Having decided to do business in a particular country you should then consider the solvency, liquidity and growth of your customers. Your sales people can play a major role in gathering valuable intelligence - as long as you have told them what to look for. Reports from the bank may be helpful but they are usually limited in the information provided.
Reports from some of the credit agencies can be quite extensive and will often give a credit rating as well as data on balance sheets, directors and company activities. Contacting the consulate can in some cases provide good information on a customers reputation standing etc. But don't expect a credit rating.
This material has been provided courtesy
of Obrico Ltd Global Trade & Finance.
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