My own experience has been built in this environment. Over more than 15 years working in mineral purchasing, processing, international marketing and cross-border exports, I have seen how decisions made at one stage of a transaction can affect every stage that follows.

A quality issue at the source can become a commercial dispute at the destination. An unclear contract term can create an unexpected cost at the port. A documentation delay can hold up a vessel even when the cargo itself is ready.

The examples in this article come from the global minerals trade, but the underlying lessons are not limited to mining or commodities. Whether a company exports manufactured goods, agricultural products, technology, consumer products or professional services, the same fundamentals apply. Exporters must understand what they are selling, identify the right customer, set clear expectations, manage operational risk, coordinate reliable partners and protect the commercial relationship.

The following seven takeaways reflect lessons from my own industry, but each can be applied by exporters across sectors, products and markets.

1. Export readiness begins long before the sales contract

A successful export does not begin when a buyer signs an agreement or a vessel arrives at port. It begins much earlier, with a clear understanding of the product and every stage of its value chain.

In mineral trade, that journey can include exploration, extraction, processing, storage, inland transportation, sampling, laboratory analysis, port handling and ocean freight. A decision made at any one of these stages can affect product quality, shipment timing, commercial performance and the buyer’s confidence.

This remains true even for exporters and traders that do not own the mine or processing facility.

Companies may outsource or purchase from upstream suppliers, but they cannot outsource their responsibility to understand how the product is produced, handled and verified.

Actionable learning: Map the entire value chain during the market entry planning stage. Identify the operational dependencies, control points and parties responsible for product quality, timing and documentation at each stage.

2. Quality control must continue until loading is complete

Mineral products are sold according to detailed physical and chemical specifications. Depending on the commodity, the contract may set limits for grade, moisture, particle size, sulphur, phosphorus, silica or other impurities. Even a small deviation can lead to price adjustments, payment deductions, penalties or cargo rejection.

Testing at the processing plant is not enough. Representative sampling continues while material is transported to port, accumulated in stockpiles and loaded onto the vessel.

The reason is practical: once a bulk cargo is inside a vessel’s hold, replacing, separating or correcting it may no longer be feasible.

The best time to find a quality issue is before loading or, at the latest, while there is still an opportunity to stop and correct the process.

Actionable learning: Build a quality assurance plan that follows the cargo from source to vessel. Define where samples will be taken, who will conduct the testing, which laboratory methods will apply and what happens if results fall outside the agreed specification.

3. Match the sales strategy to the buyer’s business model

Not all buyers evaluate suppliers in the same way. Mineral buyers can be divided into two broad groups: industrial end users and trading companies.

Industrial buyers, such as steel mills, smelters, cement producers and fertilizer manufacturers, consume the material in their own operations. They typically prioritize consistent specifications, dependable delivery schedules and long-term supply capacity. Their supplier qualification process may be demanding, but a successful relationship can lead to stable demand and stronger long-term commercial value.

Trading companies do not generally consume the product. They purchase and resell it to industrial customers. They may offer greater flexibility around shipment timing, transaction structure and, in some cases, specifications. However, they are often more price-sensitive and focused on commercial competitiveness.

Neither customer type is automatically better. The right choice depends on the exporter’s capabilities, experience, production reliability and market-entry objectives.

Actionable learning: Before approaching a prospect, determine how it creates value. Then tailor the proposal around its priorities, whether that means technical consistency and continuity for an end user, or flexibility, price and marketability for a seller.

4. Build credibility through consistent engagement and operational transparency

International business relationships increasingly begin online through professional platforms, websites, email and virtual meetings. But initial contact is only the beginning. Converting an online introduction into a real transaction requires professional communication, useful information and consistent follow-up.

Industry conferences, trade exhibitions and technical forums also remain valuable because they give exporters direct access to decision-makers and market intelligence. Once credibility has been established, a site visit to the mine or processing plant can be especially powerful.

A site visit allows the potential customer to assess production capacity, processing facilities, quality controls and the supplier’s overall operating capability. It turns marketing claims into visible evidence.

Actionable learning: Treat business development as a staged process. Begin with targeted research and outreach, demonstrate commercial credibility through accurate information and follow-up, and use site visits to validate operational capacity when the relationship is sufficiently advanced.

5. Plan logistics around real port conditions, not assumptions

A freight quote does not tell the whole logistics story. Vessel selection must account for cargo volume, route, draft limitations, berth availability, vessel-size restrictions, cargo-handling equipment and the operating capacity of both loading and discharge ports.

Exporters must also understand storage availability, weather exposure, working hours and realistic loading and discharge rates. These details affect how long a vessel is permitted to remain in port. When operations exceed the agreed laytime, demurrage charges can become substantial.

The chosen Incoterms® rule also matters because it determines which party carries specific costs, responsibilities and risks.

FOB, CFR and CIF are commonly used in bulk mineral shipments, but each creates a different allocation of responsibility. The appropriate choice depends on the ports, commodity, freight arrangements and the seller’s ability to manage additional risk.

Actionable learning: Validate port and vessel assumptions with experienced shipping agents and operational partners before signing the contract. Model likely loading and discharge scenarios, including delays, and select an Incoterms® rule that reflects the company’s actual capabilities.

6. Documentation and payment must move together

A vessel can be fully loaded and still remain in port because the documents are not ready. In mineral trade, documents move the vessel just as much as the cargo does.

Document preparation should begin before the vessel arrives and continue alongside loading. Some records can only be finalized after the loaded quantity, vessel information, inspection results and shipment details are confirmed. This requires coordination among inspection firms, laboratories, customs authorities, shipping agents, port operators and vessel representatives.

Payment structures should be designed with the same care. Depending on the transaction and relationship, options may include advance payment, letters of credit, documentary collection, cash against documents, telegraphic transfer or staged payments.

The release of original shipping documents should be aligned with the agreed payment milestones so the seller does not give up control prematurely.

Actionable learning: Create a document responsibility matrix and payment timeline before shipment. Identify each required document, its preparer, approval deadline and connection to payment or cargo release.

7. Manage risk early and allocate it clearly

Risk cannot be eliminated from international trade. It can, however, be identified early, assigned appropriately and managed with practical safeguards.

The main areas requiring attention include: counterparty reliability, price volatility, specification compliance, logistics and demurrage, political and regulatory disruption, payment security and dispute resolution.

Due diligence should examine the buyer’s commercial background, financial reliability, reputation, payment history and trading experience. Pricing clauses should clearly define the commodity index, quotation period or formula used to calculate the final price. Force majeure provisions should explain qualifying events, notice requirements, party responsibilities and consequences. Contracts should also identify governing law, dispute-resolution procedures and the agreed court or arbitration forum.

Many disputes, are not caused by bad intentions. They arise from unclear specifications, ambiguous responsibilities, incomplete documents or weak contracts.

Actionable learning: Conduct a pre-transaction risk review involving commercial, operational, logistics, finance and legal stakeholders. Resolve uncertainty in the contract before it becomes a costly disagreement during execution.

Preparation, partnership and trust

The most important takeaway is that long-term export success rests on trust, but trust is not built through promises alone. It grows from consistent product quality, reliable delivery, transparency, accurate information and a record of keeping commitments.

For mineral exporters, that means understanding the product from source to destination, choosing customers strategically, maintaining control over quality, planning logistics realistically, securing payment and documenting responsibilities clearly.

The same principle applies across international trade: the strongest transactions are built well before the goods cross a border.

Preparation reduces avoidable risk, capable partners strengthen execution and consistent performance creates the trust required for lasting global business relationships.

This article was adapted from the FITTskills Live webinar Mine to market: Managing global trade complexity.

The post What every exporter can learn from the global minerals trade: 7 key takeaways appeared first on Trade Ready.

While there are many risks inherent in international trade finance, there are also numerous methods of settlement in international trade available to exporters and importers to manage and mitigate risks.

In most developed countries, an organization can draw on a wealth of free or inexpensive expert opinions to assist with risk mitigation for financial transactions.

Major banks typically have large portfolios of international loan assets and maintain extensive international financial networks. To safeguard their interests and those of their customers, banks employ large staffs of political analysts and international economists, and are often willing to share their expert opinions and written reports.

Embassies and consulates abroad, as well as commercial officers, are valuable sources of political and economic risk information, and can refer their clients to local service providers abroad that can assist in obtaining more detailed information on commercial risks.

These resources can often provide information on a target country’s current business environment, as well as credit and business information about potential customers.

An organization should select the financial instruments that best address its needs and identified risks, as well as those that respond to the underlying dynamics of a commercial contract.

In general, importers and exporters must agree on terms and methods of payment based, in part, on the risks associated with planned transactions. Below you will find 4 methods of settlement in international trade you can use to reduce your risk.

Want to learn more about methods of settlement in international trade and other risk mitigation options? Check out the FITTskills International Trade Finance online course.

Risk Insurance

Businesses that engage in international trade can mitigate commercial risk and protect its interests through various forms of insurance, including:

• Political risk insurance
• Foreign accounts receivable insurance

Indeed, insurance options are available to address nearly every category of risk that suppliers and buyers could possibly encounter while conducting international commerce.

Political risk insurance (PRI) and accounts receivable insurance (ACI) are particularly common, and can be obtained from specialist private sector providers or, depending on the market, from public and private entities such as export credit agencies (ECAs).

Most ECAs were originally established as public sector entities that promoted exports by providing various financing and risk mitigation products and solutions.

In recent years, however, some of these organizations have been fully or partially privatized and have mandates that extend beyond their original public sector focus. In fact, just before the onset of the recent global financial crisis, many questioned the need for ECAs in international trade.

However, their critical value was demonstrated when the market collapsed and private sector providers retreated in panic. Variations on the ECA model continue to be numerous, with the approach and the scope of ECA-like organizations varying almost by country.

In any event, most ECAs continue to offer political risk insurance and foreign accounts receivable insurance, which are both important forms of coverage that can help exporters offset trade-related commercial risks. Some ECAs also offer medium-term buyer financing, which is another helpful tool for export promotion.

Risk Transfer

Many of the strategies mentioned in this section involve the transfer of risk from one party to another for a fee. Insurance, for example, transfers risk from an individual policyholder to a portfolio of clients managed by an insurer to disperse the risk among stakeholders whose premiums fund payouts against claims.

This usually occurs over time, as it is unlikely, under normal circumstances, that a material number of policyholders will present claims at the same time.

Another attribute of an organization that successfully mitigates and manages commercial risk includes the continual assessment of the relevant risks versus the associated costs of conducting global financial transactions.

For example, a very common loss suffered by exporters involves the commercial failure of the foreign importer, while, for importers, it is the failure or inability of the supplier to deliver the merchandise exactly as specified and when required. Sometimes, poor documentation will restrict or inhibit the export or import of merchandise.

Political and country risks account for a much smaller number of losses, but should also be considered when structuring a transaction.

The challenge for an organization trading internationally, whether importing or exporting, is to get to know and trust its foreign suppliers or importers and to balance this knowledge with the risk optimization tools available from a variety of sources.

An organization must then choose a form of settlement consistent with the assessed risk and its level of tolerance for that risk. The ongoing test will be to remain competitive—and commercially viable—while incorporating the risk of loss and the price of protection against such a loss, into the final price of the finished product.

Risk can also arise from factors beyond the good faith or control of the trading partners. If exchange controls are imposed by a government, the ability and willingness to pay is not sufficient to assure a successful conclusion to the transaction. The next section emphasizes the trade finance instruments which can be used to secure payment.

Learn about what impacts your cash flow and how to maximize it with this free FITTskills Lite resource. 

Open Account

Open account payments are essentially transfers of funds to the account of the exporter. Historically, open account payments have been used in trade between very stable and secure markets, such as the United States and Canada, or in intra-EU trade, and in cases where the trading relationship is established and trusted.

Open account payment terms are those under which the seller extends credit to the buyer, finances the whole sale and sends a standard invoice demanding payment within thirty to sixty days of receiving the goods.

In addition, terms are suitable for a very strong buyer-seller relationship with a creditworthy client. Much of the trade between Canada and the United States is done on an open account basis.

Trade on open account is also increasingly the preferred mode of payment across much of the globe.

This shift, driven by large global importers, introduces additional risk for exporters in that payment is affected after the delivery of goods and/or services, sometimes for as long as 90-120 days after delivery.

This method has some potential risks as the importer could, for example, become insolvent, or the country of import could experience political turmoil, preventing payment. In such cases, the exporter loses control, and usually title, to the goods and/or services and has limited recourse to recover payment.

From a documentation standpoint, aside from the commercial invoice that will be issued by the exporter in an open account transaction, this transaction normally also involves an ocean bill of lading (i.e. if ocean shipping was part of the agreed-upon terms and a shipping container of goods has been sent).

In these instances, the exporter will usually send all original copies of the ocean bill of lading (i.e. those issued by the shipper as receipt for the goods) to the buyer. The ocean bill of lading serves as the title to the goods so, upon receipt, the buyer (or the buyer’s designate) can present an original copy of the ocean bill of lading at the receiving port to get the shipment released.

Note that, in certain circumstances, it is possible for the exporter to authorize a release of the goods without an original copy of the ocean bill of lading. However, many exporters still rely on the courier to deliver original copies of the ocean bill of lading to the importer to prevent an unintended and unsecure release of the goods.

Payment in Advance

One of the methods of settlement in international trade not yet mentioned is payment in advance. In contrast, payment in advance (advance payment) is a payment that is made before receiving the good or service, so it presents the highest risk to the importer (i.e. given that the exporter could easily receive the funds and not carry through with the promised shipment).

Exporters sometimes require advance payments by importers as protection against non-payment or to purchase supplies to fulfill the order. Higher advance payments may be required for specialized products as a hedge against buyer default when it may be more difficult or impossible to sell the products to a another buyer.

If an importer wanted to have a pre-shipment inspection when paying cash in advance, he/she could hire a 3rd-Party Inspection service to visit the manufacturer and file an inspection report.

However, the cost of such an inspection would also add to the investment being made by the importer. So the credibility of the exporter in this sort of a scenario would typically have to be very high.

Even with the best intentions and good faith, factors such as political turmoil and other unforeseen events could prevent a willing and well-intentioned exporter from completing a shipment as promised.

As a result, payment in advance is rarely used for transactions that are structured on a recurring basis. However, advance payment is frequently used when the reputation of the exporter is well-established and the importer sees little risk in an advance payment.

Advance payment establishes the importer’s credibility when the exporter does not have sufficient confidence in the importer. In these situations, the initial payment in advance transaction is used to gain the confidence of the exporter, and it is often accompanied by negotiations that are intended to lead to better payment terms on subsequent transactions, such as open account, as described above, or documentary collections.

The post Getting paid: 4 trade finance instruments you can use to reduce your risk appeared first on Trade Ready.

International trade is a complex undertaking, especially when dealing with new customers in new markets. It can be a risky venture that requires careful consideration and planning around the major risks and costs of doing business globally.

How to plan successfully

A business that has decided to export its product or service to a new market or to buy from a new supplier in a different country cannot take for granted that the potential transactions will be viable, profitable or provide goods and/ or services at a price and quality that are competitive.

From a financial point of view, a transaction may prove unrealistic if the cost of entering a market is too high, the competition is gruelling or the price the company needs to charge in the new market is not competitive. A transaction is not viable if the resulting sales generate losses or cannot adequately support the cost of doing business.

An importer needs to be sure that the product or service remains appealing to themselves or their potential customers after factoring in the landing costs (all costs associated with the delivery of the goods and/or services to the country of destination), the packaging and the expense of any up-front travel and due diligence. An exporter must ensure acceptable and timely returns from international business activities in proportion to the associated costs and risks.

Want to learn more about how to keep the cash flowing by implementing financial management strategies to address any factors that could impact your bottom line? Check out the FITTskills International Trade Finance online course.

Financials are key for entering new markets

For an exporter, the decision to enter a new market may stem from a sales and marketing plan based on solid market research or it may be a reactive response to an unsolicited request. Regardless of the driver, financials must remain a top priority in planning new ventures into international markets.

Determining all the elements that factor into successful international trading is time consuming, and is complicated by national boundaries, foreign exchange and customs, among other factors. Exploring and entering new international markets is expensive, as costs can involve numerous variables, including:

• Travel
• Communication
• Market research
• Packaging, insurance
• Professional services fees
• Banking charges

Additionally, international business by its nature will generate unexpected situations—some minor while others catastrophic—and financial planning for enterprises of all sizes must incorporate contingency strategies.

Success in international trade and global business demands a flexible, dynamic and responsive approach to the conduct of business and to the planning and management of related financials. The viability of a proposed trade venture, relationship or transaction may be determined in an orderly, staged process, or in a more fluid, interactive manner. Regardless of the approach, planning, managing and continuously refining the financials around international trade is both prudent and necessary.

Unique costs

There are some unique costs to be considered with international transactions, as compared to domestic transactions, including:

• International travel
• Long distance communications
• Participation in trade fairs and missions abroad
• Hiring of foreign agents
• Translation

Some of these costs may be especially high when first expanding into international business or to new markets, and may need to be amortized over several years.

Plan for the incremental costs

The post How to plan for the costs of venturing into global business appeared first on Trade Ready.

While in contract negotiation, the payment method and payment terms must be specified and agreed upon. There are various factors that will influence the methods of payment and payment terms, including:

• Location of the importer
• The supplier
• Previous business relationships of the two parties

Mutual assessment of the risks involved in the transaction will influence the method of payment and payment terms. The importer runs the risk of paying for goods that are not received, or that are not received as ordered, and the exporter risks shipping goods but not receiving payment.

To be effective, the agreement must balance these risks and satisfy both sides so that the deal is worth undertaking. When and how payment must be made for goods and/or services is a matter of negotiation, and are part of the terms and conditions of the contract.

The purchasing company will normally want to defer payment and secure the longest possible time between the date when products are received and the date funds are transferred. During this time, the importer can verify the quality of the shipment, evaluate product performance and minimize the risk of fraud. The importer might even wish to save on financing costs by selling the goods before paying for them.

On the other hand, the exporter will want to be paid as quickly as possible, even to the extent of receiving payment before shipping the ordered goods. As the payment objectives of the importer and exporter pull in opposite directions, the payment terms agreed upon in a contract often reflect the relative strengths of the two parties.

What are my options for payment methods?

There are different methods of arranging payment that are available to an exporter. These include:

• Cash in advance or prepayment
• Documentary letter of credit
• Documentary collection
• Open account

In addition, consignment—while not a payment method—is another way of structuring a transaction between the importer and exporter. In a consignment deal, the exporter retains the title to—or ownership of—a shipment of goods, using the importer as an agent to sell those goods. The importer then remits the proceeds after selling the goods to a foreign customer. If the goods are not sold, the agent will return them to the exporter.

With respect to services, when there are no goods to serve as collateral, often only the simplest payment terms are used, such as open account and cash in advance or prepayment. Therefore, service providers tend to break their work into smaller tasks/objectives with more frequent payments to minimize the exposure associated with non-payment. In some instances, service providers could insist on a letter of credit for payment provided that the importer and exporter can agree on documentary evidence from the work performed that would suffice for the release of payment.

Want to learn more about all aspects of how to manage business costs and cash flows, ensure payment and stay profitable long-term? Get started with the FITTskills International Trade Finance online course!

Developing your schedule of payments

When an exporter and importer are negotiating a contract that is spread over a period of time, parties tend to outline a schedule of payments that defines the dates at which payments are made from the importer to the exporter. When contract duration is long (e.g. 12 months or more), a schedule of payment is based on various milestones that will be reached during the contract.

Milestone-based contracts are much easier to control and payments are based on achieved results. The success of such contracts lies in the wisdom of defining the milestones, which should be justified to both client as well as contractor. In this way, the percentage of the contract that has been completed can be evaluated and the payment that is due can be assessed. In addition, scheduled payments can either be parameterised or customized.

What is a parameterised schedule?

A parameterised schedule is generated based on a set of rules and market conventions to define the frequencies of the payments. These parameters include:

• Payment frequency: Annually, semi-annually, quarterly, monthly, weekly, daily, continuous
• Payment day: The day of the month on which the payment is made
• Date rolling: The rule used to adjust the payment date if the schedule date is not a business day
• Start date: The date of the first payment
• End date: The date of the last payment, also known as the maturity date

What is a customized schedule?

A customized schedule consists of a series of dates that define exactly when payments will be made and is tailored to the expected progress of the contract over its duration.

The following image shows a sample of a schedule of payment.

The post Learn how to select the payment methods and terms that work best for your business appeared first on Trade Ready.

As any experienced international trade professional can tell you, doing business in global markets isn’t without its trade finance challenges.

Breaking into a new market often involves a significant investment upfront, and keeping track of currency fluctuations can be an ongoing concern once you do. On top of that, it’s not always easy to secure payment, and chasing down money owed to you or your business can be a real hassle.

With these trade finance challenges in mind, here’s some advice from case studies from the FITTskills International Trade Finance course that will help smooth the path towards success.

1. How do I choose the right bank or financial institution to help finance my international business?

The thought of taking out a sizable loan or financing plan can cause trepidation. Fortunately, taking the right steps before money ever changes hands to select a financial partner you trust and will offer you what you need should alleviate many of your concerns.

Like many aspects of exporting and importing, thorough research of several options is necessary. It’s OK to have a preferred option in mind, but make sure you’re not missing opportunities elsewhere that could benefit your business in the long run. Thoroughly investigate and compare each option before you even make an initial appointment, and understand the costs, benefits, and disadvantages of each option.

Having trouble deciding which options to focus on? Referrals are one excellent option.

If a bank or financial institution has worked well for similar companies you know, it could be a strong option to start your search.

Government-supported options are also excellent places to look for financing. In Canada, organizations such as Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) are well equipped to help you with trade finance challenges, while American companies can look at the U.S. Export-Import Bank and the U.S. Small Business Administration.

2. How can I minimize risk related to fluctuations in foreign currency?

While a change in the exchange rate could potentially reduce costs, it’s the opposite situation where a change increases costs that can keep finance professionals up at night.

One solution could be to write a fixed rate of exchange directly into a contract, along with the price, date and quantity of an order. This type of contract is known as a forward foreign exchange contract. While this forces you to forego any potential benefits of a changing exchange rate, the stability reduces risk and makes it easier to budget within a larger financial plan.

Another option is to negotiate to have the prices set in your domestic currency, meaning any risk then falls on your buyer or supplier who uses a different currency, rather than your business. Different businesses may value using their own currency, so make sure you know how much such a concession would be worth to your business, and what you may be willing to give in order to assure your needs are met in your contract.

Potential exchange rate fluctuations could also be used as a factor when negotiating the overall price. A buyer may be able to use intense fluctuations as part of a strategy to negotiate a lower price, while a seller may use a stable rate to negotiate a higher price.

In some situations, a company may want to purchase an option from a bank or other financial institution, a specific agreement to allow you or your company buy or sell a certain currency at a fixed exchange rate by a specific date. Another similar option would be to sign a futures contract, fixing a rate to exchange one currency for another with a specific bank or institution for a certain date.

3. How can I make sure I receive payments, and don’t have to chase debtors around the world?

It’s bad enough trying to chase someone down who owes you something back in an everyday context, like books they borrowed or their share of a restaurant tab.

Just think of how those issues would become exponentially more complicated when you’re chasing down another person or business in another country, who owes significantly more money.

A debt collection agency can be used if needed, but results cannot be guaranteed and a portion of the reclaimed amount will then be owed to the agency, reducing the amount your business will receive in total.

Receiving some of the money owed to you is certainly better than none, but whenever possible take steps up front to ensure full payment will be made.

While not always an option, the most fail-proof way to ensure you get paid is to guarantee payment from a third party through a confirmed letter of credit or export credit insurance. This way, payment is guaranteed to the seller, even if the buyer is unable to make the full payment, as is the funds will be backed by the bank or agency.

A company can also request full prepayment before delivery when there is a perceived risk of non-payment. It is also possible to negotiate to receive money in installments based on specific actions if concerns about the buyer’s immediate cash flow are part of the discussion.

The post Overcome 3 of the biggest trade finance challenges with these tips appeared first on Trade Ready.

Their work on payment agreements and contracts ensures businesses receive the money they’re due, and that they have the cash available to continue running.

They also play important roles in reviewing economies and currencies around the world to help their companies avoid running into trouble and identify new opportunities.

How do you excel in this role? Here are five skills that you need to master to have a successful career in international finance.

1. Analyze and mitigate economic and currency risks

When your company starts operating in economies with different currencies involved, the risks that international finance professionals must manage begin to multiply rapidly.

A number of questions must constantly be asked to properly assess these risks:

What data must be read and analyzed to determine previous trends? Which factors seem most likely to influence the country’s economy and currency in the months and years to come, such as tax laws, trade agreements, and the overall economic outlook?

What level of exchange rate fluctuation can be forecasted and planned for? At what point could economic shifts and currency exchange rate swings have a major impact on the company’s bottom line?

And what can be done to mitigate your company’s exposure to these risks, in terms of contract negotiation, insurance, financial tools and services used, or asset ownership?

Finance professionals can equip their company to weather any economic turbulence, or even give it the opportunity to take advantage of changes still to come.

2. Manage existing strategic alliances or partnerships

While managing partnerships is typically considered a responsibility for business development or management, finance professionals are integral to their company’s relationships as well.

International finance professionals interact with their company’s bank or lender, and the financial departments of its partners, suppliers, and customers.  It’s their responsibility to ensure everyone is happy with the current agreements. If not, they would be part of re-negotiations, and help to resolve any disputes related to the company’s finances.

3. Conduct the entire gamut of international transactions

International finance professionals are part of every step of the transaction process. Payment options need to be negotiated which involves assessing the risk of the deal, determining who will take on which risks, when payment will be sent, and determining which laws will apply.

Finally, they must decide whether payment will be completed through a letter of credit, open account, documentary collection, or other method.

They also obtain financing for their company through loans, lines of credit, investors, or government grants, and work out the terms and repayment plan. Additionally, they handle any credit insurance, guarantees or bonds needed.

Finally, they will make sure all conditions of payment are met, and that funds are sent or received appropriately according to the terms listed in the relevant contracts.

4. Manage cash flow

Once all contracts are signed and payment conditions approved, it’s crucial to ensure the company will have enough money on hand at all times to make all necessary payments.

Keeping track of when the company will receive any influx of funds and the risk of non-payment must go hand in hand with scheduling when all outgoing payments must be made.

An international finance professional would have to assess whether anything could cause delays to a payment scheduled to be received, or whether a fluctuation in currency exchange could affect the amount to be received. They need to aware of any additional fees that could increase the total payment amount needed.

Failing to have sufficient funds to pay a supplier or partner could jeopardize a business deal or negatively affect a company’s credit, so managing the cash flow is imperative to a business’s long-term future.

5. Conduct all business according to policies and procedures to meet legal and ethical requirements

As they go through every detail of the statements, contracts and other material they work with, international finance professionals must ensure everything meets legal requirements.

Whether that requires working with specialists like custom brokers or lawyers, confirming all licenses and permissions have been obtained, or just reviewing internal policies, there’s a lot to keep track of.

Once other international markets with their own laws and ethical standards are also included, monitoring all requirements and guidelines becomes an essential skill.

Still have more to learn before you’ve mastered all five key skills categories? FITTskills courses can help you build these skills and more, in a practical, flexible environment.

The post 5 essential skills for any international finance professional appeared first on Trade Ready.

If corporations start working on blockchain projects, it will be for mission-critical (i.e., niche) applications, while waiting for the “big thing” to occur. Banks, in fact, may not have any role to play in their future plans for the technology.

Why are corporations showing little interest in blockchain?

Corporations are late to take on the blockchain debate, and their lack of awareness may be the symptom of a simple lack of interest. After all, banks are all over blockchain because bitcoin shook them up and made them keep their eyes wide open.

Another possible explanation for such slow corporate uptake is that one of blockchain technology’s value propositions, if not the main one, is that buyers and suppliers can connect directly and form online networks, removing the need for middlemen.

Smart contracts running on the blockchain should automatically detect trigger events along the trade value chain and instruct parties on actions to take to comply with contractual obligations. This sets the blockchain as the enemy of all intermediary operators in a business-to-business (B2B) environment.

A B2B relationship is made of a sequence of buyer and supplier pairs (Figure 1), with a relatively high level of trust between the two.

Figure 1: B2B Supply Chain Pairs

Source: Aite Group

While there can be very little trust between an exporter and an importer at the edges of the B2B value chain, this is certainly not the case between the paired parties. So if each pair on the B2B value chain intrinsically trusts each other, what additional contribution could a blockchain bring?

Furthermore, there is a clear shift to trade on open account terms, and open account business is increasing in market share. Open account occurs when a seller ships the goods and all the necessary shipping and commercial documents directly to a buyer, who agrees to pay the seller’s invoice at a future date.

Open account is typically used between established and trusted traders. That has compelled the banking industry to seek to re-engage with buyers and suppliers. They are doing this by developing a blockchain-based value proposition aimed at meeting the needs of traders operating on these open account terms.

But, if open account transactions are founded on trust and keep banks out of the picture, why should corporate trade partners want to get them back with a blockchain? Since open account transactions are based on the principle of trust between parties, why the need for a trust-free distributed ledger technology?

Challenges ahead of full blockchain implementation

Additional challenges present the need to examine prior use evidence before B2B partners can fully adopt blockchain applications:

• Nobody runs totally digital flows end to end. How does one manage the transition of ownership between data encrypted in a block in the chain and paper-based documents?
• Companies (e.g., logistics service providers) are making money on paper-based trade, so why should they change to digital?
• Trade finance is frequently referred to as the domain that would most benefit from blockchain applications. But trade finance partnerships are already established on trust, so why the need to change?
• Freight forwarders are taking care of paper-intensive customs business on behalf of their clients. The service allows the client to outsource a significant portion of logistics clearance and controls activities, making it a highly profitable business to the service provider. Since all parties are enjoying the benefits of a de facto situation, why should they replace that service with paperless blockchain applications?

Is secrecy the enemy of blockchain?

To summarize, the blockchain is presented today as the enemy of all intermediary business, as it eliminates the need to have a central controlling entity responsible for safekeeping trading records.

If there was to be industry-wide adoption of blockchain, the role of this controlling entity would be replaced by a decentralized ledger that no one single party owns or controls. This apparent advantage may backfire and be counterproductive to corporations.

The untold truth is that the last thing corporations may want is to give total visibility of their trade transactions. The existence of a publicly distributed ledger may not represent the best commercial interest for B2B partners.

There is the problem of revealing too much information: A company does not want its competitors to know where it’s getting goods. Commercial confidentiality is the most important element to preserve.

Blockchain adoption dependent on a wait and see approach

Innovation happens in bursts. When the Internet became popular, two “asteroids” hit the consumer world: email and the Web browser. Such a disruptive effect from blockchains has not yet occurred in the corporate world.

While the bitcoin has been the killer app (i.e., the asteroid) for banks, there is nothing for corporations with the same mass adoption scale as bitcoins – yet. If this is the case, then little or no demand for blockchain-based applications can be expected by corporate users.

Maybe those most aware of the technology within corporations are financial directors and corporate treasurers, for the simple reason that they are frequently exposed to banks and therefore absorb the inherent dynamics. These corporate representatives expect changes in payments, securities trade, and bank clearing.

All have concerns that the blockchain discussion is moving too fast, however. The corporate side of the equation needs to first see a consolidation of the different players that populate the crowded space of blockchain applications. The need for standards and regulation is the next call.

The post Blockchain for trade: Not all that glitters is gold appeared first on Trade Ready.

International sales can mean delayed payment and can carry its own payment security risks. It’s certainly easier to collect in Toronto than in Tokyo, or in New York than Nigeria. International collections usually involve increased delays, administrative burden, legal costs and additional complexity.

So how does one provide payment security for international sales and improve cash flow?

Understanding the payment security spectrum

Let us first review the range of one’s payment security options. The first, “open account”, is most favorable to the buyer and least favorable to the seller. On the other end of the spectrum is “payment in advance”, which is least favorable to the buyer and most favorable to the seller. Here are all five options across the spectrum:

1. Open Account
2. Documentary Collections (Documentary Draft – The Reverse Check)
3. Letters of Credit
4. Confirmed Letters of Credit
5. Payment in Advance – Inclusive of Partial Payment in Advance

You may find the ends of this spectrum to be hard to pitch to either the seller or buyer. With new or unproven customers, the seller will be hesitant to ship goods on open account, with no guarantee of payment. On the other end of the spectrum, few customers are willing to prepay and trust a vendor to ship goods, with no guarantee of shipment.

Note one exception, however. Partial pre-payment (or progress payments) are standard in certain industries. For example, construction companies or large equipment companies may require progress payments at certain stages of a project (e.g., a percentage payment upon issuance of a purchaser order, a further percentage payment upon approved drawings, a percentage payment upon purchase of major materials, etc.).

If you are not in an industry that routinely relies on pre-payment, avoid the extremes of sales on open account vs. prepayment by utilizing a documentary draft or a letter of credit.

Here’s why the documentary draft usually works well for both buyers and sellers

The documentary draft (or bill of exchange, as it may be called) is a special type of negotiable instrument, like a reverse check, that is commonly used to expedite payment. It provides the seller with the security of not permitting the buyer to possess the goods until the draft is paid, or is authorized to be paid.

Moreover, in the event of the buyer’s failure to pay, it permits a seller or the international bank involved in the transaction to sue the buyer, based on the draft alone, without having to prove the terms of the underlying sales contract.

How does the draft work?  The seller ships goods, generates appropriate documents (e.g., commercial invoice, certificate of origin, etc.) and also receives documentation from the shipper (e.g., bill of lading).

We will collectively refer to these documents hereafter as the “title documents”.  The title documents are then forwarded to the remitting bank (the seller’s bank), which in turn forwards the title documents to the collecting/presenting bank (usually the buyer’s bank).

The collecting/presenting bank compares the title documents to the draft’s requirements. If the documentation is in order, payment may be authorized and the title documents are released to the buyer. With the Title Documents in hand, the buyer can then retrieve the goods.

This is a relatively simple and inexpensive payment method. It often provides for more prompt payment than an open account, and the seller has the security of retaining title to the goods until payment is authorized by the buyer.

While this method is more secure than an open account transaction, there is still some risk that the buyer may reject the documents or otherwise renege on the transaction. The banks do not guarantee payment of the draft.

If all else fails, a letter of credit may be better for securing payment

If a seller is unwilling to risk the customer’s potential refusal to honor a documentary draft, they may prefer that a letter of credit is used to secure payment. In this manner, the buyer’s bank guarantees payment and the buyer hasn’t the discretion to reject payment. In this case, the seller must transmit title documents (as defined above) that satisfy the conditions of the letter of credit.

The letter of credit transaction begins with the seller and buyer agreeing to a letter of credit format and terms. For instance, the buyer might call for the letter of credit to require that the bill of lading be negotiable or marked “freight prepaid,” or that the packing slip or certificate of analysis contain certifications as to quality, weight or markings.

The buyer will then request its bank (the issuing bank) to issue the letter of credit in favor of the seller. The letter of credit is forwarded to a bank nearer to the seller’s place of business, and this bank (the advising bank) notifies the seller of its receipt of the letter of credit.

Presuming the seller ships goods prior to the letter of credit’s expiration date, the seller generates and obtains the title documents (e.g., commercial invoice, bill of lading, etc.).

These title documents are then forwarded to the issuing bank, which will effectuate payment in the event the documents meet all requirements of the letter of credit. The issuing bank will release the title documents to the buyer, who can then claim the goods.

Similar to documentary drafts, letters of credit may be “sight” letters of credit, where payment is effectuated promptly upon the issuing bank’s acceptance of the required title documents, or “time” letters of credit, which provide for payment some period after acceptance of that documentation.

For an additional charge, the seller may overcome concerns that the foreign issuing bank may not honor the letter of credit, whether for unscrupulous reasons or due to financial solvency issues. This is done by paying for the letter of credit to be “confirmed.” Generally, the seller pays its own bank to confirm (that is, guarantee) payment in the event the issuing bank fails to do so.

When using them, ensure that letter of credit costs (including confirming costs, if applicable) are included at the bid stage so your margins are not later decreased by this amount. Use only reputable banks. Insist upon an irrevocable letter of credit rather than one that is revocable. Ensure that the documents you forward to the issuing bank strictly comply with letter of credit requirements – failing to do so may result in late payment or, in the event of a delay beyond the letter of credit expiration date, possible non-payment. Become generally familiar with the Uniform Customs and Practice for Documentary Credits to understand the rules of the issuance and use of letters of credit.

If you want to expedite international payments and be more assured of payment, use the documentary draft or letter of credit.  Your CFO will love you for it.

The post Show me the money! Securing payment for international sales appeared first on Trade Ready.

Our next #TradeElite Twitter chat will help you navigate all things money. We’ll talk about methods of payment, which method to use and why, and how to implement different types of payment.

Join our special guest moderator Alexander Malaket, CITP|FIBP, to make sure you get paid when you go global!

Look here for details on how to participate in our chats and build visibility for your global business and brand.

Highlights from the previous #TradeElite chat

During our last chat, Emiliano Introcaso, CITP|FIBP, and our panel of experts  gave up great tips and advice for selecting the best vendors to create an effective global supply chain.

#TradeElite Q1 Can you share your experience when selecting #global vendors?

— Emiliano Introcaso (@introcaso) May 8, 2014

@Cerasis These are outstanding qualities we all look for in distributors. #TradeElite

— Louei Ali (@LoueiAli) May 8, 2014

@introcaso A2: Ask a LOT Of questions to all the players and partners in the #ValueChain. Japanese say “Gemba” #TradeElite (Cont.)

— Cerasis (@Cerasis) May 8, 2014

@introcaso A2: Assess 1st, plan & create strategy, execute strategy, set up KPIs, get Data, Data, Data, iterative improvement #TradeElite

— Cerasis (@Cerasis) May 8, 2014

Find out how the @TCS_SDC can help your SME find qualified contacts: https://t.co/hsbRSlUSyk #TradeElite

— Paula Ibbotson (@paulaibbotson) May 8, 2014

@introcaso A3: This Q is relative to 1st. Risk management becomes more of a priority & assessment as well. EXPERTISE is a must #TradeElite

— Cerasis (@Cerasis) May 8, 2014

@introcaso A4: w/so many moving parts for transportation, warehouse, negotiations, etc., 3PLs allow you to skip the pitfalls #TradeElite

— Cerasis (@Cerasis) May 8, 2014

@introcaso A4: Facilitate within the local market. Just used TCS in Brazil and they guided me to 3pl and it worked #TradeElite

— Louei Ali (@LoueiAli) May 8, 2014

@introcaso A5: Improved INTERNAL culture, begetting higher communication/collaboration for more innovation #TradeElite

— Cerasis (@Cerasis) May 8, 2014

@introcaso Absolutely! We do that here, including employee development. See importance of here: https://t.co/NTCxLltbsN #TradeElite

— Cerasis (@Cerasis) May 8, 2014

Q5: clear timelines at each stage. We say one day delay can cost us 2 weeks on delivery. #TradeElite

— audrey ross (@tresAudrey) May 8, 2014

@introcaso @LoueiAli What’s the saying: “Measure Twice. Cut Once.” Same in #ValueChain & Biz decisions in general #TradeElite

— Cerasis (@Cerasis) May 8, 2014

@LoueiAli @Cerasis @introcaso but channel partners must be vetted by biz plan not logistics experience https://t.co/B8ne335c3z #tradeelite

— Ed Marsh (@edbmarsh) May 8, 2014

my take for today’s #TradeElite chat is to plan, prepare a good strategy, invest in your employees. All gains for a better #valuechain

— Emiliano Introcaso (@introcaso) May 8, 2014

We look forward to seeing you at our next #TradeElite chat and virtual networking session.

The post Get paid when you go global! Upcoming #TradeElite chat and networking session appeared first on Trade Ready.