Entrepreneurs know how to assess a potential client before doing business with them.

They consult their industry contacts and sales staff who sell to competitors about the firm’s reputation, and listen to industry views and opinions before granting a client credit.

However, business people who trade internationally don’t always have ready access to kind of first hand knowledge of their potential importers or suppliers.

Firms conducting risk assessments of foreign trading partners need to develop a strong base of knowledge and contacts so that they can gather the information necessary to make informed business and credit decisions.

Fortunately there are a number of good sources of commercial risk information that businesses looking to go global can use to make their decisions.

1. Credit bureaus

Companies such as Dun & Bradstreet operate around the world and can do credit checks on potential clients. If the potential client is located in an industrialized country, the reports are likely to be similar, providing detailed financial information. In developing countries, much of the usual financial information may be missing and the credit report may look more like a reference.

2. Banks

Using the banking information (bank, branch and account number) of the prospective client or business partner, a local bank can ask the client’s financial institution for a credit reference. However, this will only show how the company operates its bank account; it will not show how efficiently the prospective trading partner pays invoices and meets financial obligations.

Privacy legislation in many countries will restrict the information a bank may pass on about their clients.

3. Chambers of commerce

In many countries, businesses must be members of their local chamber. These chambers may be able to help traders investigate a potential client or supplier.

4. Embassies and consulates abroad

If the potential client or supplier has already done business with companies based in a given country before, the commercial sections of the embassy or consulate in the trading partner’s country may have a file on that company, particularly if the previous experience was negative.

[learn_more caption=”Is the FITTskills program for you?”]

Developed by business for business, FITTskills meets the needs of those who are

• seeking to enhance their import-export career standing,
• new to exporting or importing,
• and those who simply want add to their expertise or gain valuable educational credits.

Learn More about FITTskills [/learn_more]

An exporter, for example, can inquire through their own diplomatic missions, whether a potential buyer is known to the mission in the buyer’s home country, and may even be able to enlist commercial specialists in the mission to conduct some preliminary due diligence on the prospective buyer.

5. The company’s website

One of the best sources of intelligence about any company is its website.

Sites are often rich sources of information that the importer or exporter can later verify. Various search engines on the Internet may also provide useful information on the potential supplier or importer.

6. Public documents

If the company is public, its financial statements are public knowledge and anyone can access them through various sources, such as libraries and the Internet.

Filings with regulatory authorities in the company’s home country, as well as in other jurisdictions where it operates, are excellent sources of information.

7. Accountants

Many large accounting firms have offices worldwide. As well as providing information on potential clients, they may be able to help entrepreneurs learn about issues in other countries.

Other sources

This list is just a starting point; there are many other potential sources of information.

These sources will collectively enable an importer or exporter to assess the creditworthiness of a potential supplier or importer.

It’s crucial to be able to identify their ability to produce the quality of required goods or services, or their ability and track record in paying for shipments as agreed in order to operate an profitable and successful business.

What sources have you used to decide if a potential client is risky or not?

The post 7 sources importers and exporters should use to assess financial risks in foreign markets appeared first on Trade Ready.

Northstar Trade Finance was founded in Canada in 1994, specifically to address the unique needs of Canadian SMEs and their international trading partners.

Outstanding strategic partnership model

Northstar first caught the US Ex-Im Bank’s attention several years ago with their strategic partnership model. Northstar works closely with many financial institutions and public sector partners, several of which are shareholders of Northstar.

They have also developed a series of alliances with world-class export credit and export insurance agencies, as operations expanded beyond Canada to the United States, United Kingdom, and continental Europe, among other markets.

The partnership approach, combined with the world-class technical competency of the Northstar team, led the US Ex-Im Bank, America’s export credit agency, to authorize them as a delegated lender.

That meant they were approved to make credit decisions and lending transactions on behalf of Ex-Im: a privileged role accorded to very few trusted organizations.

After several years as a Delegated Lender, their strong continuing efforts have been rewarded with this prestigious honor.

Scott Shepherd, CITP®|FIBP®, the President and CEO of Northstar, notes that “This recognition, by one of the top export credit and insurance organizations in the world, is a tremendous win for the Northstar Team.”

It’s an undeniable acknowledgment of the value and effectiveness of our partnership approach, as well as our single-minded focus on and commitment to SMEs pursuing opportunities in the global marketplace.

Addressing a crucial need for SMEs

International trade forms a significant portion of many nation’s GDPs, and SMEs are increasingly recognized as engines of growth, job creation and economic value. Yet access to trade financing to fund these activities has often been underappreciated or difficult to acquire.

More recently, the direct and critical link between trade success and access to financing – including traditional trade finance and emerging solutions in supply chain finance – has been recognized at the most senior levels of political leadership and by heads of key international institutions like the WTO and various multilateral development banks.

Many small and medium-sized enterprises pursuing opportunities in international markets, however, still have trouble accessing trade financing – including highly effective risk mitigation solutions – through traditional providers of trade and supply chain finance.

Northstar has therefore developed an effective business model aimed specifically at addressing the unique challenges and needs of SMEs in Canada and internationally.

Even as major financial institutions reduce their international exposures or exit lines of business like trade finance, Northstar is actively working to extend its footprint, both directly and through expansion of its international partnerships.

Shepherd, a long-time supporter of FITT and a CITP®|FIBP®, notes, “At Northstar, we have gathered a team of top-level credit, risk and international market experts.”

“In addition to developing and structuring effective financing solutions in support of trade, we are uniquely positioned to provide advice and support to SMEs operating in or aspiring to operate in international markets, from OECD economies to emerging markets.”

“Our network of partners and associates provides an additional resource-base upon which Northstar can draw to help enable SME trade activity.”

Providing excellence in trade finance with innovation and expertise

It is clear that no single bank, export credit agency, multilateral institution or other entity can meet all of the trade financing needs in Canada or internationally.

It is equally a reality that SMEs continue to experience disproportionate difficulty in obtaining adequate, affordable levels of financing – including trade financing – despite the increased rhetoric about the importance of this market segment.

In Canada, the clear directive of the federal government through the Global Markets Action Plan, to support SMEs in their pursuit of international opportunity, is consistent with similar priorities in many markets around the world.

The reality, however, is that 80-90% of trade activity is supported by some form of trade finance, yet SMEs continue to experience difficulty in accessing trade finance, and the traditional providers of this form of financing are now increasingly challenged by credit and capital constraints and by limitations in capacity linked to increasing regulatory pressure.

As trading patterns evolve and exporters expand and diversify beyond traditional trading partners, the needs of SMEs for expert advice and well-structured financing will increase exponentially, as will the need for alternate sources and additional capacity.

Northstar, however, is nothing short of a world-class innovator in the financing of international commerce, benefitting from strategic alliances with organizations like FITT, numerous shareholder financial institutions, and various top-tier export credit and international institutions.

The award from US Ex-Im reflects the technical competency of the Northstar team: a key element of international business and trade.

Through more than two decades of evolution, building a network of effective partnerships, alliances and collaborations around the globe, they have been able to serve a crucial need for SMEs at a time when access to effective and innovative trade financing is more important than ever.

The post Northstar from Canada wins prestigious award from the Export-Import Bank of the United States appeared first on Trade Ready.

Due diligence on a trading partner means:

• The nature of the prevailing legal tradition and the ability (or not!) to enforce redress even if you do “win” the case
• The nuances and complexities of cross-cultural interaction and negotiation
• Selection of local representation

…the list is long, and for many, daunting.

Diligent finance means you get paid

As an exporter (to take one view on the conduct of trade), if you do everything correctly and succeed in closing an attractive deal – or even better, establish a promising relationship – but somehow fail to get paid in the end, after producing and shipping the agreed goods or services, then all that effort and all the skill and effectiveness may be for naught.

This is where a generally misunderstood and underappreciated element of international commerce comes in: trade and supply chain finance.

Before your eyes glaze over in despair and disappointment at the prospect of  a discussion of – ugh – finance, think of this as your “SHOW ME THE MONEY” moment.

Trade is a great deal of fun, and it is personally and professionally enriching, but it is, after all, most commonly a commercial undertaking, at the end of which one hopes to be paid handsomely, for having ventured where others dare not.

What do we mean when we say trade finance?

Trade finance – quite literally the financing of international trade – has a long history of operating modestly and quietly in the background, facilitating billions in annual merchandise trade flows without seeking so much as a tip of the proverbial hat in acknowledgment.

It is unassumingly enabling the flow of financing in support of trade, while at the same time, helping to mitigate risks of all kinds, in the most challenging markets on the globe. In this respect, one might say that trade finance is very Canadian in character: effective, low-key and unpretentious.

In our training and advisory activities, and in recently published “Financing Trade and International Supply Chains” (Gower, UK), we argue that trade financing at its core is about some combination of four elements:

• The facilitation of secure and timely payment across borders
• The provision of financing to one or more trading parties
• The effective mitigation of a wide variety of risks
• The enabling of information flow about aspects of the physical and financial flows related to a trade transaction or relationship

Trade finance accounts for trillions of dollars worth of trade transactions

While the use of traditional mechanisms like documentary letters of credit (L/Cs) are in (relative) decline in many markets, the long-established and much-maligned L/C still facilitates roughly 10% of annual merchandise trade flows, which are in the $18 trillion range today.

It does so on the basis of rules and practices that are broadly understood and accepted throughout the world, in no small part due to the work of the International Chamber of Commerce Banking Commission in Paris, and the related jurisprudence that has evolved around such mechanisms.

More recently, and particularly in the post-2009 economic and business environment, many trading partners have opted to shift away from traditional mechanisms, despite their advantages, due to cost and process intensiveness.

Companies of all sizes, in markets around the world, are increasingly conducting business on open account terms – where the exporter produces and ships the agreed goods, and the importer sends payment at an agreed point in the transaction.

Financial institutions and trade finance ‘boutiques’, as well as various technology-based platform providers, have been working to evolve their value proposition in this area.

The brand new world of supply chain finance

Supply Chain Finance (SCF) is so new, in fact, that there is a multi-association effort underway now to devise a common set of nomenclature and terminology around the financing of international supply chains.

This effort falls under the auspices of the ICC Banking Commission that involves numerous specialty industry associations.

Until recently, some providers of traditional trade finance would have contended (perhaps some still do) that there is nothing fundamentally new in SCF. This is, in my view, a short-sighted perspective that ignores one major reality:

The shift to SCF models motivates bankers, financiers and traders to look at the conduct of trade in the context of an ecosystem of trading relationships, and not merely on a bilateral, one buyer, one seller approach.

The need for supplier finance programs

Even as governments tout the importance of SMEs as engines of economic value-creation, there exists an environment (globally) where small and medium-sized enterprises report ongoing, serious challenges in accessing timely and affordable financing in support of their international ambitions. The evolution of trade and supply chain finance is both critically needed and more than welcome

Supplier Finance Programs (also referred to as Buyer-Led Supply Chain Finance, among other terms) are one of the most popular and growing favours of SCF in the market today.

The key in such programs is that a large global buyer engages with their primary banker to provide financing to strategically important members of their (typically emerging market based) SMEs. This is done on the basis of invoices submitted by the qualifying suppliers and approved for payment by the buyer.

In effect, the invoice(s) are discounted, and the supplier receives funds significantly earlier than would otherwise be the case, improving cash flow and working capital.

This financing is extended on the basis of the credit standing of the large buyer (since the bank is ‘lending’ against an invoice that has been approved for settlement).

This tends to make the financing less expensive than what the supplier would be charged on their own merit, and allows the buyer to assure a steady and sustainable supply of key production components from strategic suppliers.

Innovation in SCF solutions

In addition to various SCF techniques taking hold in the market, there is a very visible increase in the application of technology to the provision of trade and supply chain finance.

Trade-related documentation is being increasingly ‘dematerialized’ and dealt with in electronic format. Likewise, settlement and financing models, are shifting from paper-based models to data-driven solutions that take the subjectivity out of payment and financing decisions.

This also accelerates the payment and financing process significantly, and thus helps to inject material amounts of liquidity – read cash – into the global market.

This at a time when industry estimates (Asian Development Bank, 2015) suggest that there is a global gap in trade finance in the range of $1.9 trillion annually, and at a time when government and international institutions are increasingly focused on sustaining the success of SMEs in international markets.

The perennial mission for those of us engaged in this business, to get more Canadian companies and more SMEs in general interested in international markets, continues to be challenging. Post-crisis realities, however, strongly suggest (again!) that market diversification is a critical target for the Canadian economy.

One way to enable companies in pursuit of such opportunities, is to ensure the availability of adequate levels of affordable trade and supply chain finance.

Another would be to provide competent technical advice and the vision necessary to see that there are transformational forces at work in the business of trade and the financing of trade today.

Complacency among traditional providers is a serious risk, when Facebook now has a banking licence from the central bank in Ireland, PayPal is entering the working capital lending business and encouraging cross-border commerce, and Alibaba announces that it will support its trading community with trade financing solutions.

Bottom line? Trade finance is not a luxury or an esoteric branch of financing to be ignored in the hopes it goes away or fades into the background of a transaction. It is a strategically critical enabler of trade activity, and an evolving part of next-generation international commerce.

The advice and support you get in this area can make or break your international trade aspirations and strategy, so challenge conventional thinking and limited vision from your trade financiers, if you run in to it.

What aspects of your international trade financing can you change to improve your business strategies?

What else does Alexander do?

Learn more about the intricacies of Trade Finance from one of the leading subject market experts on the topic. His critically acclaimed book Financing Trade and International Supply Chains will give you deeper insights into nature of trade finance at its core, and of the versatility of this discipline in enabling trade flows involving businesses of all sizes.

The post The role of trade finance in making or breaking your global business aspirations appeared first on Trade Ready.