If you are involved in businesses that regularly engage in international trade, it would be extremely helpful to have a trade finance account to help mitigate the risks associated with international purchases. Of course, we normally pride ourselves in being able to establish strong relationships with our business partners, but in the end this is no substitute to fair risk management via trade financing.
Some of the scenarios where trade financing is an extremely valuable arrangement are as follows:
- Suppose you are purchasing goods from a supplier based in another country and that supplier requests that you pay for the goods before they are shipped; in most cases, this arrangement only becomes acceptable when you have trade financing. Basically, trade finance helps to mitigate the risks by involving reputable banks that provide various forms to support the legitimacy of the transaction. Your bank can now talk to the supplier’s bank and execute the necessary documentation to ensure that the transaction happens as agreed.
- Another trade finance transaction governing the same agreement is when parties execute a trade credit insurance. Trade credit insurance works much like other insurance policies in that it protects a company from risks associated with goods that have yet to be received. These insurance policies allow a company to transfer liability to the banks so they can be protected from fraud or business eventualities like bankruptcy or default.
Today, most companies that engage in international trade rarely complete a transaction without the benefit of trade financing. As such, they have established trade finance accounts which are funds dedicated to managing and executing international trade risk management strategies. These strategies are closely managed by banks which hedge the transactions.
If you are operating on an international scale and you wish to avail of the security offered by trade financing, it is best to open trade finance accounts to help you execute your risk management options. Pick a reputable bank to handle your affairs so you can focus on securing the goods that will help you grow your business. By sharing the risk with the banks, you are enlisting the help of a reliable partner that will help you fleece out the risks and manage them on a tactical basis. It’s a win-win situation for any business owners and frankly, it is a strategy that all business owners who are involved in international trade should seek out.