• Trade Financing Costs with International Suppliers
    When purchasing products from overseas there are many costs that businesses overlook. Included in these unforeseen costs are trade financing costs. The Department of Commerce’s “Asset Cost Everywhere” site discusses in-depth the costs of utilizing an international supplier - specifically, the trade financing costs of working with these international suppliers.

    According to the ACE Tool, “financing costs must be considered when a firm’s supply chain extends into other countries.” When sourcing goods from an international supplier, additional costs are something to seriously consider as they can add up quickly.  These costs include special financing costs, upfront payment for goods, taxes, bond premiums, broker fees, storage costs and more.

    Cash Flow Conundrum

    When working with an international supplier, many companies will experience cash flow issues due to the necessities with purchasing internationally.  Unlike domestic suppliers, many international suppliers require payment for goods upfront.  Businesses will have to front the cash earlier than when purchasing domestically.  This also means that goods cannot be inspected before payment. If the product is not up to par, the payment has already been made and getting a refund for the faulty product will take time and the cash will not be liquid during that time period.

    Another international supplier implication that can affect a company’s cash flow is shipping time and associated costs. According to the ACE Tool, “the average travel time for a container vessel from Asia to the US is between two weeks to a month.” The majority of international shipments travel by land and sea as weight costs make it cost prohibitive to ship goods by air.  Due to longer shipping times, many times business are forced to purchase more inventory or order inventory sooner than they normally would, ultimately spending more cash than they would with domestic suppliers.

    Special Financing Barriers

    When purchasing goods internationally, different payment methods may be needed than what is typically used in a domestic transaction. The risk with international transactions is that some exporters may require letters of credit from the importer's bank. A letter of credit means that the bank ensures that payment will be made to the exporter’s bank. There is typically a fee when a letter of credit is needed for a purchase. Payment being made by the bank means that there is no oversight from the importer unlike with domestic transactions. In addition to the special financing arrangements for payment, other costs such as import costs, harbor fees and customs fees are added to the total cost for the shipment. These additional costs would not be necessary with a domestic transaction.

    Consider Implications with International Suppliers

    It is important to consider all costs, trade financing costs included, when selecting a supplier. Many times it makes much more sense to choose a domestic supplier over an international supplier from a costs perspective. Contact Custom Rubber Corp. to learn more about our services and capabilities that could fit your business needs and budget. 
    Posted Tuesday, March 5, 2019 by: Global Administrator
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