Mitigating Business Risks with Trade Finance

Businesses are facing many difficulties with trading overseas at the moment, whether it be delays in ports or the strength of the pound against the currency you are working with. With all of these difficulties affecting various traders, here at WeDo we want to share with you a few key areas to focus your attention to avoid unnecessary risks.

Being prepared is the best way to combat or factor in delays, added costs or ending up with goods that aren’t what you bargained for. Any business looking to buy goods from overseas must go in with their eyes wide open, be aware of the risks they will need to control and mitigate, to ensure they do not end up with a problem.

How can Trade Finance help?

Utilising a Trade Finance Facility will likely go some way towards this as the lender will look to implement certain conditions against which they will provide the funding – this is actually more about protecting the business importing the goods than it is the lender.

Mitigating product risks when importing goods into the UK:

  • Ensure any contract or Purchase Order between you and your Supplier is very clear and precise in its nature – you do not want a dispute after the goods have been paid for.
  • Understand the Quality Control Procedures your Manufacturer has in place, and insist on seeing the documentation that confirms the testing and inspection has taken place before they release the goods and you pay for them.
  • Consider an independent inspection of the goods before you pay for them. This could be a straightforward number count and check that the product has been manufactured, or it could be some form of sample testing and approval that the specifications are correct and the goods “do what they are intended to do.” Many Shipping Agents will have local Inspection Agents they can direct you towards.
  • If at all possible, have your own end customer approve a sample of the goods in question and ensure this is used as a benchmark by the party carrying out an inspection of the goods

Mitigating the risks when products are in transit:

  • Make sure you agree on the INCOTERMS that suit the transaction best for both you and your Supplier. This will confirm who is responsible for paying which costs in relation to the movement of the goods and who is responsible for each part of the journey from the supplier’s premises all the way to your designated location. Also, crucially, agree who is responsible for the ensuring of the goods are in transit
  • Ensure that you have the appropriate levels of insurance and the right policy for your business
  • Engage with a reputable Shipping Agent and ask for their assistance in making sure all relevant paperwork is in place to ensure the smooth importation of the goods once they reach the UK.

Mitigating the risks of currency and exchange rates:

  • More often than not, you will be buying the goods in either the local currency of the supplier or, largely, in US Dollars – so you need to watch your margins.
  • In order to help protect yourself against this risk, it may be possible to work with your Trade Finance provider. Either make sure they are able to obtain a better ‘spot exchange rate’ than you would be able to access when the Supplier payment is required, or, depending on the nature of the transaction and the parties involved, it may be feasible to look at pre-booking the rate of exchange. Remember that this is, of course, still a risk as the rate may improve between you booking it and when the payment is made.
  • When you are putting quotes together, and also producing your own forecasts, make sure you build some ‘wriggle room’ in to protect your margins should the exchange rate go against you.

Mitigating risks with payment methods

  • Although it may be possible to operate on a ‘Letter of Credit’ basis, these are much less prevalent than they used to be – and tend to mainly be available via mainstream banks.
  • Many suppliers have moved towards wanting a deposit with order (typically 25% – 30%) and the balance once goods are ready for shipment / shipped. In this case, you must be confident that the Supplier is going to be able to fulfil their obligations to you ahead of making any deposit payment.
  • Once the balance is required, you must ensure the goods have been manufactured and either passed Quality Control or been inspected and, if possible, you should see whether the supplier will be happy to ship them prior to you making the balancing payment.
    Any lender is going to be far happier making the balancing payment (or full payment) to the supplier once they have evidence that the goods have been inspected and that they are physically on the way – but not all suppliers will agree to this – hence the negotiation process you will need to enter in to and potentially involve your Trade Finance provider in.

Here at WeDo Trade Finance, we have many years of experience that have allowed us to build up a network of contacts who may be able to help you manage the above risks.

Indeed, we also ensure that our facilities are structured in such a way that they will help to protect you as much as possible, whilst remaining in line with the terms your Supplier is prepared to work with.

Give us a buzz: 0330 900 5007


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