SMEs and exports: solutions for safeguarding your business

Breaking into the international market, approaching a new country, or boosting exports are important and strategic choices for a business and can be a source of great revenue, but they may also involve some difficulties. In order to best approach these market dynamics, you need to know how to choose not only reliable partners, but also financial instruments that can protect your business. This is the field in which Gianni Fabbian, Foreign Office Sales Excellence, has been working for some time; here are his tips for looking at foreign trade in a conscious and confident manner.

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international trade relations
transaction protection
international procurement

Most of my turnover comes from foreign customers: how can I best manage relations with them?

Foreign trade is a complex field in which it helps to have some experience and knowledge of various factors such as legal systems, customs and traditions, types of transportation, and solvency of the country. It is also good practice to prepare a contract of sale and purchase that states the seller’s obligation to deliver the goods and the buyer’s obligation to pay in the manner agreed. It is therefore important to define the terms and conditions of delivery, and to choose the preferred means of payment in order to obtain the guarantee that the service will be carried out as agreed.

Some solutions are particularly suited to this type of transaction such as factoring or documentary credit.

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I have acquired a new foreign customer; how can I protect myself in case I don’t get paid by the agreed date after delivery of the goods?

It is especially important in the case of a non-experimental business relationship to prepare a specific contract at the beginning and to use financial instruments that guarantee the collection of the agreed price. Among these:

Factoring involves the assignment of credit, which may be:
- with recourse: the bank advances the amount, but in the event of non-receipt by the agreed due date it will reverse the amount credited;
- without recourse: the credit will be on a final basis, and in this way the assigning company also protects itself in case of default by the debtor. This form is particularly useful in the case of repetitive shipments with deferred payment;
Documentary credit: the buyer instructs his bank to issue this credit to the seller by agreeing on all the conditions of the shipment, the type of documents to be presented, and the terms of payment, e.g., at sight or deferred. By complying with the content of these documents, the buyer will be sure to obtain payment on the agreed upon due date.

If, on the other hand, the company has already delivered the goods without any protection of receiving payment, recovering the value of the goods becomes very difficult, having to resort to an international lawsuit. There is also the risk of failure to collect the goods with incurring of the costs of stopover at the destination port.

If my company participates in a contract abroad, what financial instruments can I use to protect its success?

In order to participate in the bidding process, a guarantee is normally required for possible non-performance in case of award, called the “BID.” It can then be useful to envisage additional international guarantees against the various supply/payment events during drafting of the text.

In brief, the main International Guarantees, governed by clear and well-known regulations, where the bank intervenes to assist its client in drafting the text to help ensure protection and make it agreeable to the beneficiary, are:

Bid: the guarantee to finalise the contract if awarded, usually with a duration of 3/6 months;
Advance: the advance repayment guarantee, usually with a duration of 6/12 months;
Performance: the guarantee of good performance of the supply, usually with a duration of 6/12 months;
Warranty: the guarantee of good operation of the plants and machinery, usually with a duration of 24/36 months.

Advertising message for promotional al purposes. Advertising message for promotional purposes. For the contractual conditions in relation to Factoring, Documentary Credits and Stand-By Letters of Credit for Import/ Export, International Guarantees and Documentary Collection from and for abroad, please consult the information sheet available at our branches and in the Transparency of the website www.bancaifis.it.