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Importing goods and services can be extremely worthwhile for businesses that are looking to provide new products to their customers, while taking advantage of exchange rates, reduced production costs.
Import finance allows firms to buy commodities from global suppliers on credit from a lender by using trade finance tools. It is usually secured against various documentations within the process flow such as invoices, bill of lading,letter of credit and other specific ones.
As soon as the loan and repayment terms are agreed, the lender approves payment to the supplier immediately using one of the trade finance tools. This makes payment conditional on providing documents that proves the goods receivable have been shipped, such as a bill of lading.
For longer and more cumbersome transactions which involve multiple processing and transportation stages then other relevant tools such as performance bonds or bank payment guarantees must be used. These create performance and delivery- based payment structure, ensuring the buyer only pays for the amount of goods and quality delivered on time.
There exists a variety of import trade finance depending upon the business needs. Majorly these can be classified in:
Each of them has their own importance as well as terms and conditions depending upon the importer’s requirements.
Usance/Standby letter of credit
When a Usance Letter of Credit is applied within the transaction, it allows payment from the importer to be deferred. This gives an importer more time for inspecting goods. In the case of re-export, importers get sufficient time to sell the goods. When a Standby Letter of Credit is applied along with the transaction, it allows the exporter of the products the satisfaction about the payment as it is a type of guarantee for the due payment and is usually issued by a bank.
Bank Guarantees
Bank Guarantees can be considered as a guarantee from a bank which certifies the creditworthiness of an importer. This is done by offering to fulfil all the financial obligations of the importer, in the scenario if they cannot. The only difference between a Bank Guarantee and a Letter of Credit is the way as per which they are used. Traders who are involved in the regular import export business more likely use Letters of credit.
Invoice finance
Invoice finance is a method of import trade finance which involves selling or shifting of liabilities of their accounts receivables. For instance a company supplies their goods to Consumer X. They grant 90-day payment terms over the transaction, however by invoice financing it allows access to these funds earlier. A third party generally an Invoice Finance institution purchase or commit for the invoices, and take fee from the transaction.
Asset-Backed facilities
Asset-Backed Facilities is a type of financial tool for a business securing a loan against their collateral or assets. The asset-based loan can be secured with one of the following:
After knowing about import finance let’s go through the benefits because of which import finance should be taken. There exists a number of reasons because of which you should use import finance for growing your business. Take a look at these most crucial benefits that you and your business could attain if you take advantage of this provision i.e. import finance.
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