International Trade Finance

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  • Topic: Bill of lading, Waybill, Legal documents
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  • Published : May 12, 2013
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International Trade Finance

Answer 1
Negotiations on Documentary Collections and Factoring of Export Debts.

TTL has always followed straight documentary collection - documents against payment, however with credit being expensive in most global markets, TTL providing its overseas customers with alternative payment solutions would give its company a strong edge, in the competitive footwear business. Documentary collection, credit pros with an intermediate level of risk, there are two types of documentary collections * Documents against acceptance

* Documents against collection

On the other hand, Export Factoring is an another option for TTL when, TTL receives an order from overseas and is unsure about its client's reliability or is experiencing pressure on its cash flow, it may contract a factor. As the bank has greater financial and research resources, it will be able to check the client's local credit rating and, if this checks out, pay the amount owed immediately excluding a payment made to the exporter. When the order is received, TTL could then pay the bank back directly

There are certain features of Documentary collection that could have a positive impact on TTL’s business , such as

- Payment is typically faster than with an open account.

- TTL can retain control of the goods until payment under documents against payment — or gain a potentially negotiable financial instrument in the form of a document pledging payment within a certain time period under documents of acceptance.

- Documents against acceptance terms are more secure and enforceable than open account terms, while documents against payment terms still provide the seller with considerably less risk than open account.

Export Factoring mainly has There are two main advantages that could play a positive role in TTL’s business .First, it receives the money for the order immediately, meaning that its cash flow does not depend upon waiting for the goods to be received or even longer, depending on the nature of the invoice. Secondly, it outsources overseas credit checking and debt chasing liabilities, which are often beyond the means of smaller companies. Since everything is carried out locally, TTL would avoid other potential administration costs and difficulties associated with overseas financial transactions.

However, while both of the following short term exporting facilities could potentially play positive roles, they do have their draw backs, based on which TTL should make a descion on the chosen method facility

For documentary Collection

* The buyer could create a " non acceptance " — fail to acknowledge the call for presentation (and payment) by the overseas bank.  However, this could be avoided by Specifying that the overseas bank be the buyer's primary bank

* The documents could accidentally be handed over to the buyer prior to payment, this could be mitigated by not showing the buyer's name on the documents, but rather that of a third party as consignee (for example, collecting bank, foreign customs broker, agent). If TTL decides on the documentary facility it should check the "protest" box on the standard collection instructions form sent to the overseas bank. This obliges the collecting bank to make a formal protest in the event of nonpayment which can be of value if you must take the collection to court, and can aid in foreign risk insurance claims

In case of Export factoring
The fee paid to the factor might substantially cut the profit margin of the order and, as with any line of credit, it can also be difficult for smaller companies to persuade banks to perform a factor service.

Export factoring doesn’t have that much a risk apart from the fact that the fee that is paid to the factor might substantially cut the profit margin of the order for TTL and as with any line of credit, it can also be difficult for an upcoming company such as TTL to persuade banks to perform a factor...
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