Financing of International

Trade

By:

Trade Financing
Methods used
by Exporters

Section B | Roll No: 2-21

Abhishek Shukla 2
Aman Rai 4
Ankit Kr Gupta 6
Anmol Chopra 7
Apurva Joshi 8
Ashis Jain 11
Ayan Das 15
Firasat Ali 19
Gaurav Gupta 20
Harleen Singh Mann 21
1

Outline

Traders Visited
Payment Methods Used by Traders
Payment Methods Tried but not used now
Major Reasons for not using the Methods
Methods never tried
Reasons for not using the Methods
Financing methods used
Conclusion
Recommendations

Section B | Roll No: 2-21

Traders Visited

Xebec India Tours & Exports Pvt Ltd

Odd Lots Collection
Hiland Oilfield Services Pvt Ltd
Sneha Exports
Euro Exports
Atsar Exports Pvt. Ltd.
Bajaj Auto Consultant
Saraf Overseas Ltd
Shree Renuka Sugars Ltd
Shobha Jain Exports

Section B | Roll No: 2-21

Payment Methods Used by Traders

Method

No. of
traders
using the
method

100% Advance

Less than
100% Advance

L/C

DP

DA

Open Account

Section B | Roll No: 2-21

Payment Methods Tried but not Used Now

DA

L/C

DP

Document
ary Credit
1

Reasons for not using these methods

The buyer defaulted and the company was saved only because of the
intervention of EPCG
The responsibility and the risk for the exporter increases in case of DA/DP, which
the company is not willing to bear
In case of LC, the cost increases as well as the formalities involved are high
which increases the time of the overall cycle
Long Trade Cycle & Higher Documentation Fee involved
As some buyers delayed in making payments while some defaulted in the past
Section B | Roll No: 2-21

Methods never Tried

No.
of
Method
Trade
rs
Consignme
10
nt
Open
8
Account
DA
2
L/C
1
Document
ary
1
Collection
Section B | Roll No: 2-21

Reasons for not using the Methods

Very risky for the exporter; the company is not a very big
player and wants to stay out of risky waters
LC is costly whereas exporters do not prefer open account
or consignment sale
Long Trade Cycle

Section B | Roll No: 2-21

Financing methods used

No. of
Method Trade
rs
Bank
Finance/
Working
6
Capital
Finance
Letter of
4
Credit
Account
Recievable
2
Financing
Section B | Roll No: 2-21

Conclusion
Advance Payment is most favoured method across exporters. Even if they loose
new opportunities, they press for advance payments. Due to this practice,
exporters loose on new clients and mainly add clients on the basis of friend and
family referrals
Letter of Credit is not very popular due to cost and time factor, only few
exporters use it and that also for new clients, where before having DP
arrangements, they want to rely upon LC
LC is majorly used by well established exporters who deal in large quantities and
frequently in unexplored areas
There is general lack of knowledge of payment methods available and schemes
by government. This lack of knowledge of processes leads to perception of
hassles of Documentary payment and documentary credit
Mostly FOB incoterm is used by exporters, in rare instances of CIF insurance is
easily provided by ECGC or private insurance companies
Among banks SBI has high reputation among exporters as they feel more
comfortable dealing with SBI than other private banks
Section B | Roll No: 2-21

Recommendations
The trader can enhance its business by relaxing on the condition of prepayment.
As the company is well established now and is looking for expansion, exploring
new markets would not be a bad idea
In case of contracts in foreign currency, hedging techniques should be used
Maintain good relation with banks to get advantage of export promotion schemes
and other better financing options
The banks should be mandated to provide newsletters to educate the exporters
on available schemes and financing options
Exporters should use Documentary collection method as fee involved in them is
less than Documentary Credit methods like Letter of Credit
To expand business the exporter could cater to newer clients and use other
financing techniques in case it is not comfortable with 50% advanced basis
During these times of high currency rate fluctuations, hedging techniques should
be used
Section B | Roll No: 2-21

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