International Finance

Trade finance is a broad term used to refer to the financial products used by businesses to facilitate international trade. Trade finance enables exporters and importers to conduct international business, manage cashflow and finance critical tasks, such as product or manufacturing adaptations. Thus, access to trade finance is essential to a country’s participation in international trade. When a country or region has a high demand for trade finance but lacks access to the appropriate financial instruments, a “trade finance gap” exists. In this article, we explore trade finance in Africa.
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Adapting your product, increasing production capacity to meet international demand and marketing for exports may require financial resources you do not have on hand. While a few companies have sufficient cash reserves to fund their international expansion, most exporters require some form of trade finance.
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Running any business will inevitably involve correctly managing the business's finances and ensuring that you always have a sustainable amount of cash on hand. Without liquidity, your company will almost certainly end up bankrupt, i.e., in liquidation. While problems with cash flow can plague any business, the risk of experiencing cash flow issues amplifies when engaging in international trade.
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Conducting international marketing research, adapting your product for the export market, increasing production capacity and ultimately, marketing for exports may require more capital than you and your business has on hand. It is also common practice when conducting international business that you must agree to lengthy credit terms to conclude an international sales negotiation. For example, to win a particular deal, you may be required to consider extending credit terms of 30, 90 or even 180 days to your buyer.
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Export credit insurance is a branch of insurance which offers protection to exporters against the risk of non-payment by a foreign buyer in exchange for a premium payment.
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This article focuses on the critical role played by the export credit insurer in the early detection of credit risk and the value such a service brings.
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When an exporter agrees to any payment method other than cash in advance or a confirmed irrevocable letter of credit, they expose themselves to the risk of non-payment. To mitigate the risk of non-payment, an exporter can choose to take out export credit insurance. When procuring export credit insurance, an exporter can elect to include different types of cover in their policy. This article explains the main types of cover offered by export credit insurance companies, such as credit guarantee.
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export credit insurance is a branch of insurance which offers protection to exporters against the risk of non-payment by a foreign buyer in exchange for the payment of a premium. Suppose an exporter agrees to any payment method other than cash in advance or a locally confirmed irrevocable letter of credit. In that case, they are exposing themselves to the risk of not being paid for their goods and are advised to take out export credit insurance cover.
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Doing business internationally has numerous benefits. However, concluding a sales contract with a foreign buyer and transporting your products across thousands of kilometres involves tremendous risk. For an exporter to take advantage of the benefits of international expansion, they need to maximise their opportunities while mitigating risk.
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Ultimately, every exporter is entering the international market in the pursuit of profits and growth. However, key to achieving success when exporting is being able to assess the risk posed by a particular export transaction and taking steps to mitigating that risk. Mitigating the risks of a particular export transaction could include negotiating the use of a suitable Incoterm®, selecting an appropriate mode of transport or taking out the right marine insurance cover. However, none of these do much to mitigate the risk of you not getting paid!
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