There’s a great deal involved in doing business internationally. It’s not just the distance that can be an issue, but the political and economic situation can also be a potential obstacle to building a good, long term relationship. Fortunately, there are several payment techniques and financial resources to help you overcome these problems.
Uncertainty works both ways
How can you do business safely with companies abroad? How do you protect your business against commercial and financial risks? Are you sure that your foreign client will pay? Doing business with a particular company can sometimes be a gamble. A business in Pakistan might well generate excellent turnover, but you are still faced with a different economic and political climate, and that creates uncertainty.
And your counterparty faces the same issues. Can they take the risk of entering into a contract with an unknown counterparty established in a distant country? Your client will naturally want to be sure that you will deliver correctly and on time. On top of that, the contracts are often large, and the costs and risks can be rapidly escalate. In short, your client is confronted with financial uncertainties just as much as you are.
Building mutual trust
The start of your business relationship is hemmed in with lots of uncertainties. You want to be sure of payment and your client wants to be sure that you will deliver correctly and on time. You might for example ask for an advance, while your client could demand an advance repayment bond. The buyer naturally also wants to be sure that the equipment delivered will work perfectly, and may therefore ask you for a performance bond. And so it goes on.
When doing business internationally, gaining the trust of your future trading partner is just as important as generating sales. At the end of the day, you want to build up a long-term relationship.
This mutual trust will also play a role in the choice of payment technique. These range from highly secure payment techniques (e.g. documentary credit) for situations where there is limited trust and high risk, to less secure techniques (e.g. open account payment after delivery) if there is a high level of trust between the parties.
The question of whether you will be paid is crucial here, especially if you are entering new or distant sales markets. Extracting money from a client becomes a good deal more difficult if that client is located on the other side of the world. And there has also been no reduction in the political risks in recent years.
Do business securely with a documentary credit
For ‘difficult’ countries it’s wisest to use a documentary credit, also called a Letter of Credit. This is an irrevocable commitment by your buyer’s bank to pay you on presentation of the appropriate documentation (e.g. bill of lading, invoice, packing list, etc.). If you have this Letter of Credit confirmed by KBC, KBC will enter into an irrevocable undertaking to pay you on production of the appropriate documents.
From that moment on, you can sleep soundly, because however unknown or risky the destination is, provided you present the appropriate documents, KBC will pay you.
Secure in distant markets with KBC
KBC Corporate Banking offers a full range of Trade Finance solutions, tailored to your needs when you are building profitable long-term relationships with your international trading partners. Good support and the right solutions provide security and reassurance.
What else can we do to help your international growth plans? Find out now.
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