Lives and Livelihoods

Credit is inherent to some extent in every export sale, unless the seller is in the fortunate but unusual position of having received payment in advance of shipment. The first question for Startup Finance & Funding for Small Businesses, therefore, that will invariable occur to an exporter before he signs an agreement with a foreign buyer will be about credit: “ How much should I allow, for how long, and how do I protect myself?” Before he can answer this question with any degree of assurance, it is essential that the exporter be aware of the various methods of trade financing and understand the mechanics, protective features, and attendant risks of each. These methods have been developed and refined over the past few centuries and are now the foundation on which virtually all international trade settlements are based.

The difference between the various methods are , from an exporters point of view, related primarily to credit considerations. The method selected for dealing with any particular transaction or buyer will, in general, be that giving the exporter the degree of security that fits in with his assessment of the creditworthiness of the buyer and, to some extent, that of the country to which the goods are going.

The basic instrument used in financing trade is the bill of exchange or, more familiarly, the draft. It has been in use for centuries and has been defined by statute, in terms which could hardly be improved, as “an unconditional order in writing addressed by one person (exporter) to another (buyer) signed by the person giving it (exporter), requiring the person to whom it is addressed (buyer) to pay on demand, or at some fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer.”

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