There is the sending of products and goods to the consumers in every business transaction and receiving the payments in return. This process makes it possible for businesses to grow and the suppliers and consumers to meet their needs. However, there are cases where the payment for the products or services rendered is delayed, affecting the business process. Finding a way to cover the transaction process becomes essential and which is where import financing comes in.
How Does Import Financing Work?
For trade and business transactions that mostly involve overseas partners, trust and confidence become essential elements in the process. This is because transactions often involve a large sum of money, and trust between business counterparts becomes vital. As much as the trust and confidence in the business process remains intact among counterparts, raising or keeping up with the financial requirements can prove hectic. It, however, becomes easier to handle the problem and allows for an effective business transaction when you consider import financing.
Types of Import Finance
In bank guarantees, the financial institution certifies the buyer’s creditworthiness by coming in and offering to meet the financial obligations needed for the business transactions to happen. Bank guarantees have become essential as a form of import finance as there is the basis of trust and confidence.
In this type of import financing, the seller shifts the liability of their accounts receivables in the transactions. This means using the invoices to acquire funding to run the business believing that the payment received from the transaction settles the amount used. The lender remains in charge of the invoice until there is the completion of payments.
In this type of import financing, a business secures a loan against collateral, in most cases, their assets. Businesses use equipment, buildings, inventory, or accounts receivables as collateral for the loans acquired.
Standby Letters of Credit
This involves deferring the payments from the buyer, which also allows for more time to inspect the goods and even selling them. There is a guarantee of payment when there is consideration of a Standby Letter of Credit in the business transaction. It prevents the risks of non-payments, mostly if there are issues with the banks.
Financing your business can prove hectic when you lack the right guidance and help. Contact KPI today for information about import financing and professional guidance.