Podcast
Questions and Answers
Why is cash flow often considered the lifeblood of a business?
Why is cash flow often considered the lifeblood of a business?
- It facilitates international transactions easily.
- It ensures high levels of profit.
- It allows for the timely collection of receivables. (correct)
- It guarantees the success of large deals.
What should small and medium-sized enterprises (SMEs) focus on regarding cash flow?
What should small and medium-sized enterprises (SMEs) focus on regarding cash flow?
- Receiving cash promptly and predictably. (correct)
- Engaging in multiple international contracts.
- Showing high profit margins to investors.
- Making large deals regardless of timing.
What is a key consideration for managing cash flow effectively?
What is a key consideration for managing cash flow effectively?
- Managing large receivables effectively. (correct)
- Avoiding all forms of debt.
- Focusing solely on increasing sales revenue.
- Investing heavily in marketing.
Which of the following does NOT directly contribute to healthy cash flow?
Which of the following does NOT directly contribute to healthy cash flow?
Which strategy is important for managing cash flow in international transactions?
Which strategy is important for managing cash flow in international transactions?
What typically influences the timing of payment for forwarding agents fees?
What typically influences the timing of payment for forwarding agents fees?
When are export commissions usually earned?
When are export commissions usually earned?
What is a common characteristic of shipping and storage costs?
What is a common characteristic of shipping and storage costs?
When is cargo insurance typically payable?
When is cargo insurance typically payable?
What is the payment expectation for customs and clearance fees?
What is the payment expectation for customs and clearance fees?
What is the recommended payment strategy for export commissions?
What is the recommended payment strategy for export commissions?
Which of the following is a key factor in negotiating payment terms with shipping service providers?
Which of the following is a key factor in negotiating payment terms with shipping service providers?
What is a standard payment period for forwarding agents fees?
What is a standard payment period for forwarding agents fees?
What is a common practice regarding trade finance instruments in parts of Asia?
What is a common practice regarding trade finance instruments in parts of Asia?
What is typically the exporter’s preference regarding payment terms?
What is typically the exporter’s preference regarding payment terms?
Which factor is NOT considered when choosing a payment method in international trade?
Which factor is NOT considered when choosing a payment method in international trade?
How can payment in advance serve as a financing solution for exporters?
How can payment in advance serve as a financing solution for exporters?
What does financing with recourse imply?
What does financing with recourse imply?
Which of the following statements best describes trade finance processes?
Which of the following statements best describes trade finance processes?
What is a less common practice regarding trade finance instruments in the Americas and Europe?
What is a less common practice regarding trade finance instruments in the Americas and Europe?
Which risk factor is important to evaluate in international trade transactions?
Which risk factor is important to evaluate in international trade transactions?
What type of costs should be added to the domestic costing worksheet for exporters?
What type of costs should be added to the domestic costing worksheet for exporters?
Which aspect is primarily determined during contract negotiations?
Which aspect is primarily determined during contract negotiations?
What is typically a responsibility of the exporter during international trade?
What is typically a responsibility of the exporter during international trade?
Which of the following is NOT an example of business development costs?
Which of the following is NOT an example of business development costs?
What is a potential consequence of high upfront business development costs?
What is a potential consequence of high upfront business development costs?
Why is it crucial to understand cash flow implications when exporting?
Why is it crucial to understand cash flow implications when exporting?
What role does the importer play in the contract terms?
What role does the importer play in the contract terms?
Which of the following costs must exporters typically handle upfront?
Which of the following costs must exporters typically handle upfront?
What is the primary benefit of forfaiting for a company?
What is the primary benefit of forfaiting for a company?
What types of instruments can be involved in forfaiting?
What types of instruments can be involved in forfaiting?
At what minimum transaction size is forfaiting typically considered?
At what minimum transaction size is forfaiting typically considered?
What does the process of avalizing involve?
What does the process of avalizing involve?
Why do banks prefer to forfait avalized notes?
Why do banks prefer to forfait avalized notes?
Which of the following describes a forfaiter?
Which of the following describes a forfaiter?
What is typically the duration of credit that forfaiters facilitate?
What is typically the duration of credit that forfaiters facilitate?
What is a key characteristic of forfaiting as a financing tool?
What is a key characteristic of forfaiting as a financing tool?
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Study Notes
Export Cost Considerations
- Understanding cash flow implications of international trade is essential for exporters.
- Costs must be categorized as either exporter or importer responsibilities based on contract negotiations.
- Contract terms dictate payment responsibilities, including costs for transport, delivery, and insurance.
Business Development Costs
- These costs arise before a sale is finalized, including travel, communication, marketing, and legal fees.
- Upfront payment of these costs is common, potentially straining cash flow prior to revenue generation.
Forwarding Agents Fees
- Fees cover documentation, insurance, and transportation arrangements.
- Typically payable within 30 to 60 days after shipment loading; negotiation of terms occurs before transaction finalization.
Export Commissions
- Earned upon signing an export transaction, with payment terms that may be negotiable for better cash flow management.
- Ideally, due dates for commissions should align with expected payments from importers.
Shipping and Storage Costs
- Shipping incurs various costs payable to freight forwarders, carriers, and port authorities.
- Payment terms may resemble those of domestic suppliers, reflecting familiarity with international trade realities.
Cargo Insurance
- Payment for cargo insurance is usually due within 30 to 60 days post-shipment.
- Extended payment terms may be offered by shippers; it's critical to incorporate this cost into transaction planning.
Customs and Clearance Fees
- Fees for customs and clearance are due immediately upon shipment arrival in the destination country.
Cash Flow Management
- Healthy cash flow is crucial for business sustainability, especially for SMEs, beyond just closing deals.
- Timely revenue generation is essential to avoid cash flow issues, even with large transactions.
Financing Considerations
- Payment delays by importers can create cash flow challenges for exporters, who often prefer quicker payment.
- Factors influencing payment method selection include transaction nature, partners' financial health, and associated risks.
Payment Methods as Financing Solutions
- Advance payments can serve as financing for exporters, enabling them to use funds prior to shipping.
- Transitioning to conventional lines of credit is encouraged to minimize costs.
Forfaiting in Trade Finance
- Forfaiting allows exporters to sell foreign accounts receivable at a discount, mitigating non-payment risks.
- Requires a financial institution to facilitate transactions, typically involving larger amounts (e.g., $100,000+).
- Commonly used for medium-term receivables in capital goods and large project financing.
Avalizing
- Avalizing involves the importer's bank guaranteeing payment on a promissory note, reducing risk for exporters.
- Banks favor purchasing avalized notes, enhancing the likelihood of securing financing.
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