From Ray Stannard of International Trade Financial Solutions
Check out the new website at http://www.inttradefinsolns.co.uk
Next: “Foreign Exchange Rates”.
For those of you who run limited companies, 1st October sees the introduction of further tranches of the new Companies Act. Your Accountant should be letting you
know about this and what areas, if any may affect you. If he/she isn’t, you may want to find out why.
From Ray Stannard of International Trade Financial Solutions
Check out the new website at http://www.inttradefinsolns.co.uk
Next: “Companies Act 2006”.
There are loads of scams as we all know, but here’s one that seems to be re-appearing. If you receive an order for 1 unit only of whatever from an unknown source, be careful if your product is one that can be copied. Historically, businesses would receive such a request, usually from the Far East, a market in which they were not active, often with payment up front. The goal of the buyer was to obtain a unit, then break it down and put it on the market at a lower cost, thereby undercutting you and taking your custom. Patent/IP rights should have protected you, but recourse would be through the legal system of whatever country the fraudster was based in – a lengthy, costly and worrying process. They seem to have got wise and now the order comes from somewhere
closer to home – still usually outside the UK/EU/N America – but areas where your guard may not be as high. Yes, we all like sales, but just take stock to consider
whether the order is as innocent as it seems.
From International Trade Financial Solutions – www.inttradefinsolns.co.uk
Glossary of Terms – The “B’s”.
2 big B’s were covered last month, so we’ll mop up the rest this month. Nothing as complex this time round.
B. [continued]…
Bank Collections. More usually referred to as Collections, so I will include this under ‘C’.
Beneficiary. Pretty obvious, but included here as, under Letters of Credit, the Exporter is also known as the beneficiary of the Credit, a potential source of confusion. Think of it as the exporter being the beneficiary of the payment.
Bonded Warehouse. Specific warehouses authorised by HMRC where imported goods can be stored without payment of duty. However, duty must be paid before the associated goods can leave the warehouse. The use of bonded facilities can benefit those businesses whose goods are subject to duty insofar as the duty can be deferred, giving cashflow advantages. However, this has to be weighed up against the costs to store the goods in the first place.
BIFA – British International Freight Association. BIFA is the body representing the UK international freight services industry. Not all freight forwarders are BIFA members, and there are pros and cons of using one. However, what is important, whoever you use to move your goods, is to be totally satisfied with their service provision and have comfort that, if things do go wrong, they will work with you to resolve. Look at the BIFA website for more information and/or to find members – www.bifa.org N.B. If you accidentally click on www.bifa.org.uk you end up at the British International Film Association – do not get confused!
Bonds and Guarantees. Often associated with tendering and/or undertaking contracts overseas. In some countries, e.g. Middle East, it is common to have to provide a tender bond when tendering for a contract [especially state backed ones]; then a performance bond if you win. You may also need to provide an Advance Payment Bond in some circumstances. In all cases, the bond is issued on your behalf by your bank and basically gives the overseas party more confidence that you can undertake the contract in hand. If you do not, they will call upon the bond. Unless you are well versed in agreeing to having these issued, you should seek proper advice before you commit, as they can be costly, difficult to cancel and have other peculiarities. Note that, in some parts of the world, performance bonds have been replaced by Stand-by Letters of Credit. Also, the words ‘bond’ and ‘guarantee’ are to all intents interchangeable.
That’s the B’s – on to the C’s next month.
More from Issue 9 of “Minimising Trading Risks Abroad”, from Ray Stannard of International Trade Financial Solutions
http://www.inttradefinsolns.co.uk
Tomorrow, “Foreign Exchange Options?”. Today, a Case Study.
No names, etc., but here’s an overview of an issue that I was recently asked for help. A relatively new business, started up by a young woman who was born and brought up
in China, but had been in the UK for the past 12 years or so, was looking to expand and reduce overheads by importing directly from China as opposed to using a UK distributor. Her main issues were that she would have the direct relationship with the manufacturer, how best to structure the deal from a cashflow point of view and foreign exchange
issues.
The first was perhaps less of an issue, given her ethnicity. Nevertheless, the need to undertake fact finding trips and to keep in regular contact is essential. On the other 2 points, I explained the different options available [partly referring to the 'Risk Ladder' - which I talked about last month] and illustrated to her the effect on cashflow. Typically, many Far East suppliers need funds ‘up front’ to allow them to manufacture. Correct contract structuring at this point in the process can often avoid any physical cash prepayment, which is important.
Buying in US Dollars and selling in Sterling meant that she had to keep an eye on her expected profit margin from the whole deal, so we discussed how she could do this whilst retaining
some flexibility to allow for delays in shipment, etc. All in all, over the course of a couple of weeks [not intensive], she was able to decide how best to structure
this particular opportunity to the benefit of both her business and that of the seller.
If this sounds like something your business, or someone you know could benefit from, let me know.
From Issue 9 of “Minimising Trading Risks Abroad” – the monthly newsletter published by Ray Stannard of International Trade Financial Solutions
Http://www.inttradefinsolns.co.uk
Tomorrow, “A Case Study”. Today, Part 2 of the glossary of terms – the “B’s”.
That’s B’s as in the letter B, not anything else, although the 2 terms that I’m covering here are right B’s!. Before anyone starts worrying, I’ve no intention of filling out the next 26 issues with 1 letter per month, partly because we’ll all lose the will to live and I’ll get stuck on some of the more exotic letters later on. It just seems that the early part of the alphabet has more terms. However, the letter B will be rewarded with more next month……..
OK, then, the 2 worst B’s.
Bill of Exchange
One of the most confusing documents until you understand it, then it’s easy – honest! Often referred to as B/E, BEx, BoE and some other variants. Here, I’ll call them
B/E. There’s the legal definition and a more colloquial one, both of which do explain.
The legal one first. B/E have their own piece of Legislation, The Bills of Exchange Act, 1882. In it, a B/E is defined as ‘An unconditional order, in writing, addressed by one person to another, signed by the person giving it requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a certain sum of money to, or to the order
of, a specified person or to bearer’. There, clear as mud. Perhaps an easier way to explain is to think of a cheque. If you think of a cheque as a form of ‘IOU’ in as much as if you owe me money, you will write out a cheque in my favour. The B/E, however, is a ‘You Owe Me’, i.e. in the above scenario, I would write out the B/E and sign it, before giving it to you. In turn, you would sign to acknowledge the debt due, and then pay according to the terms – straightaway [pay on demand] or later [at a fixed or determined future date]. B/E are not common in UK trade these days [except for some specific sectors] but are common in International Trade – especially for those who deal with Letters of Credit or Collections – both of which will be explained when we get to the relevant letter. Therefore, if you do deal with these, it’s important to understand what a B/E is and, more importantly, what you can do with it, since, especially under Letters of Credit, they can be used to raise funds.
Bill of Lading
Not to be confused with B/E above. Bills of Lading are often referred to as BL or BLading. BL here to save space. A BL is a document of title to the goods to which it refers. It is issued to cover sea shipments and is usually issued by the shipping company. It also acts as a receipt for goods received for carriage and providesevidence of the terms of the underlying contract between the shipper and transport company. Being a document of title, the buyer [or more usually their agent] needs to present an original BL at the destination to obtain the goods. BL are often issued in sets of 3 original – any one can be used to collect goods – plus any number of non negotiable copies. It is important that, as a buyer, you know how many original BL are to be issued and that you can account for them all. They are usually referred to in documentation,as, for example, 3/3BL + 2NNC, meaning 3 original Bills of Lading
[any of which can be used to obtain the goods] and 2 Non Negotiable Copies.
That’s more than enough for this month. Both are important, though, and if you are involved in International Trade, it is well worth taking the time to understand their functions and some of the drawbacks and advantages of using them. For Bills of Exchange, they can have a beneficial effect on cashflow in some circumstances, so find out more before you sign any contracts.
As promised yesterday, here’s more from the latest newsletter from Ray at International Trade Financial Solutions – http://www.inttradefinsolns.co.uk.
Today, Ray starts his glossary of common international trading terms.
Over the course of the next few issues, I thought that it may be useful to include some of the terms that are often seen in International Trade and a brief explanation. I cannot promise to include every one – we’d be here for ages but I will try to incorporate some that, from personal experience, I know have caught out both importers and exporters. I’ll also try to keep things alphabetical, so if anyone wants help on a particular term or expression and I have passed that point in the alphabet, let me know, and I’ll include it in the next available newsletter.
Here goes…..
(See yesterday’s post). When applied to Bills of Exchange, it is the act of the buyer [the Drawee] accepting that the amount quoted on the bill is correct and is a valid sum due from them to the Drawer. Acceptance is achieved by signing the bill - usually in the form ‘Accepted, for and on behalf of XYZ Ltd, [plus signature & designation]‘.
The bank specifically mentioned in a Letter of Credit as being the one upon whom any required Bill of Exchange is to be drawn.
Literally, according to value. Included here since some banks still levy a sliding scale of charges [ad valorem] to some of their International services. Also important to be aware of minimum/maximum fee levels when comparing the offers of different providers.
Within the confines of Letter of Credit operations, a bank, located in the exporter’s Country that handles the Letter of Credit, advising it to the exporter. Should future
amendments, etc. be needed, these will also usually come through the advising bank. Note, however, that the advising bank is not necessarily responsible for payment
nor may you be limited to only dealing with this bank when you come to present documents and seek payment.
AirWay bill.
The shipping document used when goods are transported by air. Unlike a Bill of Lading, it is not a document of title. AWB’s are issued in multiple copies; it is usually copy 3 that is the one passed to the buyer and which he or his agent needs to present to obtain the goods in the destination Country.
Applies to Bills of Exchange. Unlike cheques, which are a form of Bill of Exchange, all parties to a Bill have to sign/endorse the Bill. Where someone whose name does not appear on a bill signs it, they are said to have added their aval or avalised it. The effect of doing this makes then liable should the bill be unpaid by the other parties. Often requested of banks by holders of the bill. A bank avalised bill is almost as good as cash and can be sold to obtain funds and help cashflow. Often overlooked by sellers.
OK, that’s enough. B’s next time……..
This article is taken from the latest newsletter from Ray Stannard at International Trade Financial Solutions http://www.inttradefinsolns.co.uk.
Tomorrow, Ray begins a glossary of terms which are apt to confound and confuse importers and exporters!
The Risk Ladder is one way to demonstrate some of the ways in which overseas trade can be financed. It focuses on the relative advantages and disadvantages, mainly from a cashflow point of view and clearly shows that, usually, what’s best for one party will be the least favoured for the other. Such is the way with most trade. There is always the over-riding aspect of how you get on with your counter party, plus the fact that, in many instances, one party will hold the upper hand in terms of negotiating. For example, if you have to buy your stock from 1 supplier only, you have a much more limited bargaining hand. Nevertheless, the Risk Ladder is still a useful tool insofar as it explains the effect of various types of payment/settlement.
From this, you can assess the impact on your cashflow. This, in turn, helps with finance planning and, if necessary, gives you longer advance notice of any pinch points in your cashflow.
OK, so what is it? It takes the most common forms of payment options and their appeal [or otherwise] to both an importer and exporter. Looking at an importer first, your preference is to pay as late as possible – ideally well after you have received the goods and sold them. However, for the exporter, he wants money up front. The following payment methods are in
descending order of preference for an importer and ascending order of importance for an exporter.
[Note that with Letters of Credit, it is the documents and not the goods that determine whether or not payment is forthcoming].
Advance Payment. Exporter is paid before he parts with goods.
With all of these, ITFS can help with more explanation, indication of likely costs and all other aspects of their respective uses and benefits.
What follows is an extract from the newsletter produced by Ray Stannard at International Trade Financial Solutions – one of our professional members. Ray specializes in helping SMEs minimize their trading risks overseas. http://www.inttradefinsolns.co.uk
“Whenever you trade overseas – be it buying or selling – or even, if you’re one of the growing number who trade purely within the UK but do not use Sterling as a settlement currency, don’t overlook the need for a suitable foreign exchange strategy as part of your overall plan. Many businesses were caught out at the end of last year when the Pound went into freefall against the US Dollar and euro. Those importing found that their profit margin was eliminated, and more, in some cases by the rate movements.
As a result, many small businesses failed – and this without all of the other issues that are currently around. Being aware of the risks and knowing what options are available to you before you sign deals will help you overcome many of these problems and allow you to crystallise your profit margin, either in whole or part. There’s no one, simple formula; every business will have slightly differing issues to address, but, if you are uncertain of your choices, then seek outside help sooner, rather than later.”
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