Methods of Financing in International Trade

Posted on Updated on

Trade finance refers to the financing management in international trade based upon the transactions of goods and services, it is the essential factor of import/ export business. HPJ Exim pvt Ltd has been India’s sovereign international trade throughout the country. Chand Sharma, Hpj Exim (Director) and Puneet Kandpal, Hpj Exim (Director) describe various methods of financing in international trade who has been in this business for many years.

Open Account

An open account consists of the transactions on which the payment is due. This method is beneficial to importer but create a high risk for exporters because of competition in export markets buyers in other country more focus on open account terms and thus, exporter might face loss. Therefore, techniques like Export credit insurance, export factoring,etc. are recommended as it variate’s the risk of non payment by buyer.

Export Working Capital Finance

Export working capital financing are required by those exporters who are out of sufficient cash and need to cover the whole cash process through the collection of sales proceeds. These export working capital financing facilitates through loans and revolving lines of credits.

Cargo ship in port at dusk

Government Assisting Trade Financing

In order to manage the supply chain of production of the factories and operating capital needs of the local exporters, government reconciles special funds for exporters distributed through commercial or specialized banks which empowers the competition in international market.

Forfaiting

Forfaiting is a prominent technique of trade financing in which exporters are permitted to sell their medium term receivables at discount in exchange for cash. Under this method, all the risk lies upon forfiaters and exporters are capable of extending open account terms and disable the discount amount into the selling amount or price. Forfaiting is modern method of removing the risk of non payment.

These were various techniques of trading in international financing. It is recommended by Hpj Exim pvt Ltd to choose techniques according to the nature of commodities you are trading in as any wrong decision in aspect of trading technique can lead your business to fall and face a major loss.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s