Trade Finance Can Help Countries with Foreign Currency Shortages
It is commonly known that trade finance can help businesses continue to conduct trade without any issues. But trade finance can do so much more. One area in which trade finance helps countries and their economies is by helping them with foreign currency shortages. Foreign currency is regularly needed to complete global trade, but sometimes a company does not have it at hand. This can be particularly problematic at times when a port only accepts their own country's currency. A company that does not have the foreign currency available may have to wait longer to receive that product, thereby slowing the entire trade and supply process. International trade financing companies can help trading businesses maintain the necessary foreign currency when needed to complete an exchange.
Why Would Countries Need Foreign Currency?
In order to conduct trade in another country, you typically need to be equipped with the currency from that country when purchasing goods. On the other end of the transaction, trading companies generally receive payments in their own currency from the end-user. In this situation, the company would need to convert the money to a foreign currency to complete the trade cycle. This is time-consuming and actually costs money to convert. Nonetheless, the currency allows the trading company to continue business as normal.
How Trade Finance Helps Produce Foreign Currency
Here is the scenario. The trading company is attempting to pick up shirts from a port in Singapore to deliver to several stores that are paying for the products. The problem is the trading company does not have the foreign currency to purchase those shirts from Singapore. The company cannot complete the purchase promptly because it has to dock and find a location to exchange money and secure the necessary foreign currency.
Had it used some form of supply chain financing, the firm would be able to ask for the financing in foreign cash in the right currency. As a result, the transaction would occur in a timely manner, and the end-user would be able to continue selling the shirts as promised without lacking inventory.
How Trade Financing Helps Keep Trade Working Business as Usual
The company from the same scenario above now must wait for payment from their end-user. The purchaser is not a slow payer, necessarily, but does not pay early, either. As a result, they may make the payment sixty days after reviewing the invoice. This payment may be made in US dollars when the company needs it in Yen. Now that the payment has been delayed, the company will need to wait an additional two weeks for the check to clear in the account and to obtain the payment amount in the currency required.
When using the best factoring companies, the company cannot only be paid quickly, but also in their desired currency. The company does not have to wait to obtain the proper currency, and the trade process can continue on time and easily.
Trade financing allows the export/import industry to complete trade transactions and avoid glitches in the process. There is no delay in receiving product or moving to the next exchange. By leveraging their accounts receivable, companies can keep moving forward with their operation activities and keep shelves fully stocked for their clients at all times.
In today’s economy, companies need to be willing to move quickly and work efficiently. Sometimes additional financing is necessary to make this a reality. With trade financing, companies will receive prompt payment of invoices and can receive payment in any currency necessary. Businesses can use the currency to complete transactions all over the world. Trade finance allows global trade to occur smoothly without anyone losing time in the process.
To learn more about using trade finance to help you obtain foreign currency, contact the experts at Tradewind Finance, a leading international trade financing company.