It’s a fact that importers will often find themselves in situations where their in-house expertise is insufficient to navigate the complex world of trade finance. In some cases, this may cause them to avoid trade financing altogether, instead doing business on pre-payment terms that limit their cash flow and ability to scale.
It need not be this way. Consultancy firms like Axton Global can help importers navigate the world of trade finance, for instance by helping them secure a credit limit from China Export & Credit Insurance Corporation (SINOSURE), enabling suppliers in China to offer deferred payment terms.
When Should Importers Use a Trade Finance Adviser?
There are a number of situations where an importer can benefit from the use of a trade finance adviser:
Compliance and documentation
Importing requires a significant amount of paperwork, even for small-scale import operations. This is especially true today, in a period of upheaval when tariff rates change frequently and with little notice. Simply put, there are many points in the workflow where organizational errors can occur, resulting in delays, potential penalties, and loss of revenue.
A trade adviser can help minimize the risk of error by keeping on top of the corporate, financial and trade paperwork needed to obtain a SINOSURE trade credit limit, helping to ensure all forms are accurate and up-to-date. This will significantly improve the likelihood of a positive outcome at SINOSURE.
First-time use of deferred payment
An importer’s first steps in shifting from pre-payment to deferred payment terms can be overwhelming because of the many steps in the process, from obtaining a trade credit limit from a trade insurer like SINOSURE, to negotiating terms with a supplier, to the necessary adjustments to operations.
A trade finance adviser can help the importer navigate this process, helping to collect the necessary documentation for a credit review by SINOSURE, for example financial statements and tax filings; assessing what payment terms would be optimal for the importer’s conversion cycle and cash flow; and advising on negotiations with suppliers to help attain optimal deferred payment terms.
Negotiating terms and coordinating with suppliers
Even for importers already experienced in working with deferred payment terms, a trade finance consultant can help structure supplier relationships and guide the process of preparing new applications.
“Importers will often get suboptimal terms simply because of the way they approach a new supplier, or because their goals are unclear or shift during negotiations,” says Igor Sokolov, Managing Director at independent international trade finance consultancy Axton Global.
“Suppliers will often assess a buyer very quickly, based on a few simple interactions, and then assign them a high or low priority. A good trade consultancy will understand the supplier mindset, and adjust an importer’s strategy accordingly.”
Insufficient working capital
An import business that finds itself lacking the cash to cover deposits or final payment within the agreed-upon payment period has a number of options, and a trade finance consultant can help determine which of these (or which combination of these) is best aligned with the business.
Depending on circumstances, the consultancy can help negotiate more favorable terms with the supplier.
Large-scale procurements and/or multiple suppliers
A trade finance consultancy can act as an independent advisor that can help structure a particularly large or complex order by advising on negotiations with the supplier(s), managing risk and optimizing working capital.
A trade consultant can help centralize and streamline complex orders from multiple suppliers, for instance by harmonizing different payment terms from different suppliers. There may be particular obstacles that need to be worked through, for instance if the order exceeds the importer’s available insured trade credit limit. In such a case, the consultancy can help design a new strategy, that may involve applying for a higher trade credit limit or negotiating new terms with suppliers.
Handling a rejection or a reduced credit limit
When a trade credit insurer rejects an importer for coverage, or reduces their credit limit, it can have a major negative impact on the importer’s cash flow and liquidity. There are a number of reasons why this can happen, some of which are strictly procedural, such as outdated documentation. But some point to deeper challenges, and a trade finance adviser can help with the most important element: Understanding why the rejection or reduction happened.
Besides outdated financial documentation, a reduction in the credit limit can be caused by underutilization: SINOSURE or other trade credit insurers will reduce a trade credit limit if the importer hasn’t placed orders for a long period. Alternately, a supplier may have placed a notice of possible loss (NPL) on an order, due to a delay in payment. This can happen even in situations where the delay is due to a dispute over quality or delivery time.
Once the problem has been diagnosed, a trade credit adviser can help to overturn the rejection or reduction, for instance by designing an appeal to the trade credit insurer (a process that may involve leveraging the importer’s supplier partnerships). Alternately, the adviser may recommend reshaping the use of the existing trade credit limit (for instance, faster repayments or smaller order sizes).
What a consultant can do for an importer
A trade finance consultant can assist an importer at every stage, from explaining the mechanics of trade credit insurance instruments to coordinating actions between the importer and suppliers.
Guidance through the SINOSURE review and onboarding process
Obtaining a SINOSURE trade credit limit requires coordination between the importer and supplier(s). It is the supplier, and not the importer, who holds a SINOSURE policy protecting against non-payment. The trade credit consultant can help guide not only the importer, but the supplier as well, through the necessary underwriting and onboarding procedures to obtain an importer’s trade credit limit, enabling the supplier to offer deferred payment terms to the buyer.
Auditing and aligning documentation
A trade consultant can guide an importer through the process of application preparation for trade credit. The aim is to reach 100% compliance through complete, proper and timely documentation, and to put the importer’s best foot forward when applying for a trade credit limit.
Negotiating better terms
A trade credit consultancy can guide an importer through the process of negotiating better payment terms with suppliers, including advice on how to best to leverage its position and assets, and how to best present the business to a prospective supplier.
What a trade finance consultant cannot guarantee
A consultancy cannot promise a specific outcome with SINOSURE, as decisions on trade credit limits ultimately lie with their underwriters. Nor can a consultancy promise any particular deferred payment terms from a supplier, as that is determined by the supplier’s willingness and ability to offer terms.
What questions to ask a consultant before starting work
Before engaging a trade credit adviser, an import business should ensure that the nature of the trade consultancy’s business, its expertise and capabilities are aligned with what the importer needs – as are the consultancy’s incentives. Questions to ask include:
- Does the consultancy have expertise in the regions/countries where my suppliers are located? Is it familiar with the regulatory structures and supplier practices in those places?
- Does the consultancy have experience in arranging trade credit limits or financing for businesses dealing with the specific commodity or product which I import?
- What is the trade consultancy’s fee structure?
- What stages does the preparation process include?
- How long does this process take?
- Does the consultant handle negotiations with the supplier?
