Planning to import goods from overseas and supply it to the local market? Whether you have decided to import garments, agro foods, pharma supplies or machineries, there are certain points you need to keep in mind to make your trading business a successful one. So, what will be the first thing to be considered? Yes, cash flow! Cash flow is important for all kinds of businesses and it’s more vital when it comes to import and export. But how you will start your import-export business in case of lack of cash flow or non-availability of funds? This article will explain the easy way to start your trading business at low budget. To get started with your import-export business at low budget, you need to be aware of – What is Trade Finance and the Methods of Payment Available in International Trade.
What is Trade Finance? Trade Finance is the umbrella term that covers a wide range of financial instruments used to conclude trade deals in a safe and secure way without facing financial risks. The main function of trade finance is to introduce a third party as a guarantor to remove the payment and supply risk. Using Trade Finance, both parties get assured that the transaction will be concluded successfully as per the terms agreed in the contract. Methods of Payment Available in International Trade There are different types of methods options available for payment in international trade. The most popular financial instruments are: Letter of Credit, Standby Letter of Credit, and Bank Guarantee. Letter of Credit Documentary Letter of Credit, LC at Sight, MT700 is the most common financial instrument often used by importers in international trade transactions. Using LC Payment assures the supplier that the buyer will make the payment for the supplied goods once the goods reached the destination port. It also guarantees the buyer that they will receive the goods as per the agreed contract. If you’re looking to start your import-export business at low budget, then you can go with Letter of Credit, as LC helps importers to import goods without paying the supplier upfront. Standby Letter of Credit Standby LC or SBLC MT760 is used by importers as payment guarantee towards the supplier. Having SBLC proves the creditworthiness & repayment abilities of the buyer. It also guarantees the supplier that the buyer will make the payment for the supplied goods within the credit period without any default. This also states that in case of any default in making the payment, the bank will be liable to meet the financial obligations as agreed in the contract. To start your import-export business with low budget, Standby Letter of Credit will also be the right option. Because having SBLC will gives you an option to purchase goods from your supplier on a credit basis. Bank Guarantee Letter of Guarantee or Guarantee Letter is the written undertaking issued by a bank to ensure that the both parties involved in the transaction will meet the commitment as stated in the contract. Bank Guarantees are mostly used in international trade dealings and construction contracts. As Bank Guarantee assures payment and performance, it gives the opportunity for traders to secure worthy contracts and trade deals that they can’t able to obtain without BG. You can get started with your import-export business by providing Bank Guarantee, as a payment guarantee and you can pay your supplier later as per the agreed terms. You can get started with your import-export business by providing Bank Guarantee, as a payment guarantee and you can pay your supplier later as per the agreed terms. Bottom Line, These are few financial instruments which will help you to get started with your import-export business at low budget. So, what are you waiting for? Get help from Trade Finance Providers in Dubai and start doing import & export at low budget! Comments are closed.
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