Tapping into foreign markets is a good way to grow a business.
It’s an opportunity to bring to your market products that may be new, hard to access or highly in demand. It helps you reduce costs, if you can tap into quality, cost-efficient supplies and services from overseas sources. As you get to be known for introducing innovative solutions that contribute to the development of the industry, it’s also a great path toward establishing leadership in your niche.
However, the importation of goods and services carries a sizeable amount of risks as well as financial commitment compared to sourcing and purchasing locally.
In order to better manage import finance, here are a few important matters that you need to be aware of before beginning importation.
Negotiating with a supplier
Each party involved in the importation process will have different goals and terms. However, in order to come into an agreement, both parties must be willing to be flexible in order to arrive at a mutually beneficial outcome.
One aspect that both parties must agree upon is the mode of payment. If you are planning to import, you must first determine the risks involved as well as the strategies you can utilise should the goods you order fail to arrive or arrive damaged.
It is also worthwhile to factor in all the costs involved, including tariffs, delivery costs, and administrative costs.
Another key area which both parties should agree upon is the delivery of the goods or services. Some of the factors that need to be carefully considered are packaging and labelling, insurance, and delivery payments.
Mode of payment
There are several modes of payments available for companies planning on making a foray into importation. These include bills of exchange and letters of credit. In most cases, advanced payments are not recommended for importing companies as these carry most of the risks involved in the transaction.
In terms of making or sending actual payments to your supplier, there are a few available options you can choose from. For one, you can send payments electronically through bank transfer. However, be aware that there might be additional fees that you need to factor in. Alternatively, you can consider third party institutions which offer electronic money transfers at lower rates.
You can also try opening a bank account in another country. This is ideal if you are regularly dealing with suppliers from a specific country.
Another option that is used by many importers is a banker’s draft where you can transfer funds to the supplier’s bank.
Large commercial transactions often require financing in order to fill in some of the inevitable gaps. What are your options as an importer? One option you can consider is an overdraft facility which is ideal for small and controlled shortfalls. If you have a good credit rating and the debt you are about to incur is substantial, you might want to consider asking your bank for a fixed-term commercial paper. Another option that you might want to consider is a short-term finance deal where your chosen bank will use stored goods as collateral. Finally, if the chosen mode of payment is a foreign currency, you might want to opt to finance the deal using the exporter’s currency.
Article Source: http://www.hsbc.ae