Just like with other businesses in other industries, if you are in the importing sector, you will need to have access to the right import financing solution. This is particularly important if you are still starting in this industry and you are striking a deal with your supplier.
Negotiating With Your Suppliers
To have the right import financing solution in place or operational, you and your supplier have to reach a balanced and mutually beneficial outcome first. And this usually falls on the topic of payment and payment method.
Experts say that the method of payment you choose will play an important role in determining what level of risk you will be exposed to. As such, you have to reduce the risk of paying for goods that don’t arrive, arrive late or damaged with the supplier wanting to be paid in full as early as possible.
It is also important to consider the total cost of importing. This fee should already include the cost of delivery, import tariffs, and administrative costs, among others. You and your supplier will have to arrange financing to bridge the gap while the deal goes through. At this stage, it is essential to keep in mind that the party that obtains better financing terms is likely to carry a greater share of the burden.
Another important to consider is foreign exchange risks. In the event that you agree to use a different currency to receive better terms, remember that you will be exposed to higher or more foreign exchange risks.
Importing Payment Methods
After negotiating with your supplier, the next part would be deciding on which payment method you should use. These options include:
Open Account – Under this payment method, you will be offered a credit period by the supplier in which to pay for the goods in much the same way as when you trade with a local supplier. This is the most common payment method when trading within the EU since the risks involved are relatively low.
Letter of Credit – Under this method, you apply to the bank, pay a fee, and the bank will then issue the letter of credit. This is a document which is essentially a promise that the bank will pay the supplier even if you fail to. The most secure version of a letter of credit is known as a ‘confirmed, irrevocable’ letter of credit.
Bills of Exchange – In here, the supplier draws up a bill of exchange with payment terms that you agree to. You can then agree to pay when you are presented with the bill or agree with a term bill with payment due after a set number of days.
By Matthew Gomez, a business financing consultant, with resource info about import financing solutions from the website of HBSC UAE.