When running any business that involves the importation of products from different countries, you will automatically require import financing to facilitate your daily activities. Even though this sounds like an obvious aspect, you need to identify the best type of import financing that can work well for your business.
Given that there are different types of import financing, it is important for you to identify a suitable option that aligns with your business objectives. It is no secret that import financing is a basic necessity that helps you to reach your financial needs and enhance customer satisfaction at the same time.
This article breaks down different types of import financing available that you need to know.
Letters of Credit
A letter of credit is legally binding and a payment commitment from a specific financial institution. The letter is written in favour of the importer as a payment guarantee, provided that the shipment is delivered. Letters of credit are commonly used to help small business owners import products from manufacturers across the globe and pay immediately when the specific terms are met.
Under this circumstance, the exporter delivers products while assuming the credit of the bank rather than trusting the importer. This type of import financing is widely used by many people since it is safe and it is easier to customize. Letters of credit work by safeguarding the well-being of the exporter and ensuring that the importer gets their products on time, depending on their agreement.
Provided that your business has reached a collateral pledge, you can easily acquire letters of credit from your preferred financial institution to help you facilitate your shipment.
This is a simpler method of facilitating your import financing is acquiring business loans to facilitate the process. If you are a small business owner and can get access to business loans from different financial institutions, you can easily get a loan to help you facilitate all your business importation. This is a straightforward method that most business owners use to ensure that their activities are running smoothly.
One of the benefits of business loans is that immediately after the loan is disbursed, the business owner can immediately pay the exporter. The loan repayment period allows you to sell your products and services as you seek money to clear the debt. However, always check on the loan interest to eliminate expensive loans likely to drag your business behind.
Even though business loans are good at import financing, you need to be careful with your loan limits to avoid getting into unnecessary debts. Always have a specific financing option that can facilitate your import financing requirement to propagate the well-being of your business.
Advance payment, also known as cash in advance, is another popular type of import financing. This is whereby the importer pays the exporter in advance for the goods and services that are ordered. One of the major benefits of advance payment is that it is simple and straightforward. However, the downside can also come with significant negative impacts, especially when the goods delivered are not up to the required standards.
This method works better when you have established a lasting relationship with the exporter. It is not advised to use this approach when dealing with an exporter for the first time. Always ensure that the products and services you intend to acquire from the exporter are up to the standard and should be delivered in a timely manner.
Even though most exporters tend to demand advance payment before the shipment, always seek clarification to find out the exporter reviews. The goal is to ensure that you only make payments to exporters who can reach your needs.
Cash Against Documents
Cash against documents, also known as CAD, is another advanced form of making advance payments. This is a method that requires the importer to pay for the goods even before receiving them. What makes this method different from advance payment is that a financial institution is given the authority to hold the shipping documents and only release the goods to the importer after making full payment.
This can also involve the use of an escrow account to facilitate the shipment process. The major benefit of using this method is that it eliminates the risks of importers getting losses. The cash-against-documents method is an easy process that any business owner can implement when importing products from different countries across the globe.
Even though cash against documents eliminates most of the risk associated with importing products, the importer is required to pay for the goods before receiving them.
Import financing is an ideal method that can be used by business owners from different diversities to reach their full potential in business. This method is used to eliminate risks and ensure that small business owners can satisfy their customers with the limited resources available.