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.