Trade finance is a burgeoning opportunity for finance professionals, as more and more of their SME clients venture into international markets, empowered by new generations of smarter communications technology and global online marketplaces. But too many brokers are missing out on that opportunity because they mistakenly believe trade finance is a niche business that’s too complex and time-consuming, or non-core to their business strategy.
The reality is you don’t have to spend weeks memorising tariffs, decoding trade agreements and swotting up on global geopolitics. You just have to grasp your clients’ needs, understand what questions to ask, and know where you can place them – and it’s not always with the banks.
If you’re just getting started in trade finance, a series of simple steps will help you meet the needs of importers and exporters while you build your own business as well.
Find out your clients’ aspirations in the global arena
Your client has spotted a potential foreign supplier and you can help them make it happen. Perhaps you’re thinking, ‘I’m new to trade finance, I don’t know how to use it.’ But think of it instead as an opportunity to grow together and help your client achieve their vision.
Ask what your client needs the funding for such may be to purchase stock in advance. Get familiar with their business and the global industry they operate in. It’s vital to show you understand the forces at work in their particular business environment.
Are they desperate to make sure shipments of clothes arrive in time for summer? If you can find a trade finance solution that delivers certainty over their imports, you will be rewarded for it with a happier client and repeat business.
Which countries will your clients be trading with?
Global trade or imports and exports run on international agreements, but every country still has its own quirks. A general knowledge of the environment your client is operating in will help you tailor the right solutions for them.
More information is readily available online. Start with Australia’s official trade experts at Austrade. Here you’ll find summaries of Free Trade Agreements and guides to doing business in more than 80 countries. The World Trade Organisation collects definitive statistics and offers original economic analysis that can quickly get you up to speed on international issues.
Almost every embassy in this country has officers responsible for promoting bilateral trade between the home country and Australia. There are also professional associations that bring together people involved in every trading relationship, such as the Australia China Business Council, the American Chamber of Commerce in Australia and the Australia-China Chamber of Commerce and Industry. And in every foreign city where expat Australians are active, there will be a local Aussie business association that can give you the lowdown on local conditions.
Understand the currency risks involved. Is hedging necessary?
Currencies move against each other every day, but an international deal can take weeks or even months to complete. How can you save your client from getting stuck at the wrong end of the seesaw when importing or exporting?
The solution is hedging, a process for eliminating foreign currency risk when you import or export goods. The client can set an exchange rate now by buying a forward contract for the amount of foreign currency they will require in the future. Or they can buy an option that locks in a rate for a certain point in the future, and decide when the time comes whether it’s necessary to exercise the option or just let it expire.
Signing an import/export deal without hedging is risky practice. Don’t let your client be too exposed to volatile currency movements.
More simply however, being able to buy when the price is right is critical. Tradeline is one alternative financing solution which is unsecured, straightforward, fast and flexible. A Tradeline facility will pay a customers’ supplier upfront (based in Australia or overseas), with repayment terms up to 90 days. This greatly enhances a SMEs buying power, maintains their cash flow and allows them to be far more responsive to buying opportunities as and when they present themselves to support hedging against currency risks and general uncertainty.
Don’t be put off by the terminology
To facilitate communication in global trade, the International Chamber of Commerce has published a set of definitions known as the International Commercial Terms, or IncoTerms.
Some brokers are daunted by the specialist terms and their acronyms, but in fact the concepts are straightforward and the names are pretty self-explanatory. Tradeline has its own handy online guide to this vocabulary.
It’s also a good idea to get your Business Development Manager involved to support you. A committed BDM can be a source of expertise and support, plus a quick link to trade finance providers such as Tradeline. One of the benefits of working with Tradeline is that as a finance professional who may not be fully conversant in trade finance, you can choose to be as involved as you wish in the application and structuring of that finance.
Do more training or head to a trade expo
Once you see the business potential in trade finance, you’ll probably want to learn more to round out your knowledge. There are plenty of options for formal training, or you can take a more fun and informal approach and attend a trade expo to extend your networks and your understanding of finance options. There are numerous expos at which you will find trade finance exhibitors and speakers, such as the Gift and Homewares Association, whose members are highly engaged in importation and international trade.
People with bright ideas and smart solutions will be talking trade all day and you’ll get an accelerated introduction to every aspect of potential clients’ businesses while building your own.
Everything you do to expand your knowledge of the trade finance field will benefit your clients. Ultimately, if their business grows, yours can too.