WAYS TO AVOID THE FINANCIAL MISTAKES MOST EXPORTERS MAKE
As long as you abide by a set of guidelines that would position you and your company for success, the commodity trading business is both high-risk and highly lucrative. However, despite the fact that the best techniques for concluding secure transactions are widely publicized, many exporters frequently veer away from the safe path and lose the majority of their capital due to desperation or other factors.
If you’re a new or existing exporter and want to ensure you don’t lose your funds under any circumstance, here are 6 ways to avoid the financial mistakes that most exporters make:
Shipping Commodities Without Any Guarantee Of Payment:
A guarantee of payment in the form of an irrevocable letter of credit is the most secure way to ensure you’re not just going to get paid, but would also provide comfort and peace of mind to the importer.
When international buyers issue a Letter of Credit, they are literally blocking the funds in their bank accounts for a certain period of time to be released to you after you meet a certain set of conditions, which could be submitting a certain set of required documents, meeting certain criteria, and much more.
Despite the advantages of this, the majority of exporters continue to accept the risk of sending goods to foreign customers without any assurance of payment other than a worthless contract that would be very challenging to execute.
Don’t take the chance of providing anything without a Letter of Credit unless the organization making the purchase is a top organization renowned for its size and reliable payment history to suppliers.
It’s also crucial to remember that you shouldn’t just take a Letter of Credit from a foreign buyer at face value. Always negotiate the LC terms, have your bank review the Letter of Credit’s language, and make sure there are no loose ends. If exporters don’t correctly negotiate fair & feasible LC terms, the overseas buyer may still choose not to pay them.
- Purchasing Products From Locals Without The Aid Of A World-Class Inspection Company: The majority of exporters purchase products from locals with the aid of impartial inspectors. They usually purchase these items after personally scrutinizing them, and only occasionally do they do so in the hope that the merchant has included the proper items.
When commodities are obtained in this manner, the exporter assumes the risk of buying products that may very well fall short of the required specifications after a re-inspection is performed at the port by top-tier inspection companies like SGS, Cotecna, or Bureau Veritas as probably agreed with the buyer.In eight out of ten cases, the goods don’t match the agreed-upon requirements.
It is recommended to hire the agreed-upon inspection business to inspect the merchandise at the point of purchase before a second inspection at the port in order to prevent this issue. You can guarantee that the things you buy will be of the same quality as those that are delivered in this way.
Although many exporters avoid doing this due to alleged high inspection charges, the cost of the inspection would often be less than 1% of the entire cost of the items purchased for supply to the port. 99% of their total investment was at danger, as opposed to a 1% cost that would have ensured quality.
- Not conducting due diligence on the buyer: The majority of exporters never conduct due diligence on any buyer that is interested in making a transaction from them. They rush to sign a sales & purchase agreement because they are eager to make a delivery without first determining whether the firm inquiring has the financial means to pay, a solid track record of doing business ethically with other exporters, or is on some list of questionable companies.
While the prospect of receiving a Letter of Credit from an importer could be appealing, you should learn as much as you can about the business before deciding to work with it. In conclusion, you should choose your clients wisely just as you would your friends.By conducting thorough due diligence on the purchasing company, you can determine whether they are who and what they claim to be and whether they would actually behave in your best interest as well as their own, rather than simply their own.
One of the quickest ways to lose your assets is to ignore this important issue, especially if the importer has morally dubious views and beliefs.
- Not Purchasing Insurance: Purchasing insurance ensures that, should something unforeseen happen to the items, you will receive a refund. But regrettably, not many exporters opt to do this.
Many exporters choose to forego purchasing insurance because they want to increase the return on their investments. As a result, they accept the considerable risks associated with obtaining and shipping goods from the point of purchase to the port of delivery without any type of insurance.
Obtaining a Letter of Credit does not adequately ensure the security of your transaction. You must also purchase insurance!When the thought of an exporter refusing to pay this comes to mind, it’s hard to feel bad for them when they lose their investments to theft, war, pandemics, pest & diseases, currency fluctuations, and so much more. Comprehensive Insurance typically costs anywhere from 0.1% to 1% of the total cargo value.
You could get both comprehensive CLAUSE A marine insurance and an export credit insurance policy to be protected. In this way, you would be protected in the event that the items were damaged or if the customer or their bank refused to pay for whatever reason.
Lack of Full Contract Negotiation: Out of a fear of losing the international customer, the majority of exporters simply accept and sign the contracts that are supplied to them by the buyer without conducting a proper review or offering mutually advantageous revisions.
For the record, if an international buyer won’t bargain and accept conditions that are advantageous to both sides, you have no business dealings with them. Walk away if they insistence on their unfair contracts.You should always send the buyer a copy of the contract you use so they are prepared. This agreement must be entirely in both parties’ best interests and must address any questions or worries you or any foreign buyer may have about the transaction. To do this, collaborate with a lawyer to create a strong contract, then keep it on hand for any potential buyers.
If the buyer demands that a contract be issued first, carefully negotiate the conditions, have your attorney review it, and make sure there are no open ends.
- Lack of Export Instruction: Some exporters are successful without any sort of training, instead learning through their mistakes and trials. However, very few business deals that are successful are the result of pure luck.
Although making mistakes can be a good way to learn the ropes, very few people succeed since by the time they make one or two mistakes, they have probably already lost all of their investments and are in debt to their creditors. Since they still have money to try additional trades, those that still succeed are often less than 10% of the group.Around 90% of exporters lose their investments on their first trial, and losing everything you have all at once could spell the end of your finances in the short term, so it’s imperative that you do everything you can to educate yourself about international trade before you start your export business.
You must never act based solely on assumption in a field where you could gain a significant amount of money or lose it all at once. Hope is not a tactic, people!