FOREIGN TRADE INTERMEDIARIES
Introduction
Foreign Trade is the exchange of goods and service between one country and another country. There are some intermediaries between the trade partners such as; insurance firms, freight forwarders firms, customs firms and Banks. In this paper functions of these intermediares will be explained.
Finance in Foreign Trade
Banks play a critical role in facilitating international trade by guaranteeing international payments and thereby reducing the risk of trade transactions.; the most critical aspects of trade is getting paid. Because getting paid in full and on time is the ultimate goal for each export sale, an appropriate payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer.
There are several ways which traders can arrange for payments to be made
• Open account
• Consignment
• Time draft for collection
• Sight draft for collection
• Letter of Credit (L/C)
• Sight Letter of Credit
• Cash in advance
Open Account
An open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the most advantageous options to the importer in terms of cash flow and cost, but it is consequently one of the highest risk options for an exporter.
Consignment
Consignment in international trade is a variation of the open account method of payment in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer
Under this arrangement, Payment is received after the the shipment seller gives certain credit period to the buyer to pay the purchase price of the goods for example 60 days after the shipment of the goods or 30 days from the invoice date and so on. Pros
• Help enhance export competitiveness on the basis of greater availability
Foreign Trade is the exchange of goods and service between one country and another country. There are some intermediaries between the trade partners such as; insurance firms, freight forwarders firms, customs firms and Banks. In this paper functions of these intermediares will be explained.
Finance in Foreign Trade
Banks play a critical role in facilitating international trade by guaranteeing international payments and thereby reducing the risk of trade transactions.; the most critical aspects of trade is getting paid. Because getting paid in full and on time is the ultimate goal for each export sale, an appropriate payment method must be chosen carefully to minimize the payment risk while also accommodating the needs of the buyer.
There are several ways which traders can arrange for payments to be made
• Open account
• Consignment
• Time draft for collection
• Sight draft for collection
• Letter of Credit (L/C)
• Sight Letter of Credit
• Cash in advance
Open Account
An open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the most advantageous options to the importer in terms of cash flow and cost, but it is consequently one of the highest risk options for an exporter.
Consignment
Consignment in international trade is a variation of the open account method of payment in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer
Under this arrangement, Payment is received after the the shipment seller gives certain credit period to the buyer to pay the purchase price of the goods for example 60 days after the shipment of the goods or 30 days from the invoice date and so on. Pros
• Help enhance export competitiveness on the basis of greater availability