A Guide to Starting a US Import Trade Business with Financing Options

US Import Trade Financing Options

Financing a US Based Import Company

Starting and Financing a US Import Trade Business is not an easy task. Here is a guide to get started and to have financing in place from Paragon Financial, a 25-year old non-recourse factoring and import trade financing company.

Export and Import are not new terms. The business of trading (importing and exporting) has been going on for 10,000+ years. Trade had made it possible for the middleman and the pioneers in the export and import business to become rich and prosperous and create the Great Houses. Even today, when a business goes global, it leads to the generation of more wealth in a short span of time. Furthermore, when a company enters the global business or international trade market, it indicates the success of the business.

What are the main motives for Import Business?

Accessibility: As much as we like we cannot be self-sufficient. Neither at the individual level nor a country level. With Import/Export in place, all the countries make good and services accessible to their citizens even when they are not able to produce or make it within the country.

Prestige: There are many things that a country can produce, but there would be a few products that the country would specialize in. For example Scandinavian furniture, German beer, French perfume, Egyptian cotton. Being able to attain the specialty of a foreign country is a matter of reputation and prestige for many. Hence, some luxurious goods and services are imported for self-esteem.

Price: Another major factor why a country would allow imports is because it makes the commodity or service more cost-effective. Many times, it is cheaper to import from another country rather than trying to produce it within the country boundaries. Walmart has a significant presence in China because of the billions of dollars of goods it imports from there to the US.

How do I get started?

One of the preliminary things you need to do is to get acquainted with U.S Customs and Border Protection (CBP) policies and procedures.  If you are planning to start an import/export business, you need to fill up CBP entry form, and you may also need to obtain a license from local or state authorities to do business. The CBP website contains detailed and valuable information for new and experienced importers. Thorough knowledge of these policies and procedures would help you avoid any potential problem with clearance of your imported goods.

Once you are sure of all legalities, start by choosing a Business name. Setup a website and blog to make yourself visible on the global market on an online platform.

Then, choose a product that you want to import and find the right market. Get into details of everything. Thorough market research is a precondition for establishing a profitable venture. You should know who you want to cater to and who you want to depend on for providing the commodity. You can always ask the manufacturer to improve and enhance the products as per your customer base.

Decide on the volume you want to import and at what price.  Ascertain the commission you want to earn and the price you would be selling the product to your customers. Finalize on business dealing contracts.

Now you are ready to get rolling. Following is the Import trail:
  1. Collect the exporter’s quotation and negotiate if required.
  2. Open a letter of credit at your bank or financial institution.
  3. Confirm that the merchandise has been shipped.
  4. Obtain documents from the exporter.
  5. Verify merchandise through customs.
  6. Collect your merchandise.

What Import/Export Trade Challenges You Should be Prepared for?

Since under Import/Export trade, you are dealing with a foreign country or multiple foreign countries, you should be prepared for various challenges as the business cycle is comparatively long and complicated. Let’s take a look at some of them:

Sourcing

Life would have been so much easier and straightforward if we could take people at their face value. Unfortunately, not all overseas companies that you want to Import from are what they seem. In an ideal situation, you could have a representative at a foreign location to supervise the sourcing of products. However, that’s not always possible. For this, you can take help from an International trade and sourcing expert.

Pricing

Negotiation is not easy as you are dealing with a different culture altogether. Many times, there would be a language barrier as well. Also, there are many miscellaneous expenses you incur which get added to the value of the goods imported. It is possible that the cost of the product you are importing is very cheap from the country of origin. However, it may be expensive to import that to your country. Hence, this requires exhaustive planning and calculation to ensure that you can make profits.

Quality Control

International trade would require you to trust the supplier to provide necessary commodities at a pre-decided quality parameter. It is one thing to explain and settle down on your expectations and the other to get the same quality from the manufacturer. Hence, proper quality control procedures need to be in place to ensure that what has been promised is what is delivered.

Transport

Getting the products from the country of origin to the destination country is no easy task. Means of transport is another critical decision we need to look into. Also, it is much better to sell to your large US-based customers FOB China, Italy, Vietnam, etc. as they have expertise in moving goods in the international supply chain.

Customs

Not being well aware of the customs policies and fees may result in deep losses and unnecessary hurdles. Without proper guidance, it can be a very time consuming and expensive affair to get your products cleared from the customs.

Financial hiccups

One of the most significant challenges is to get trade finance in the first place. Economic conditions are becoming highly uncertain, and it is becoming difficult to get bank loans. Also taking a loan from a bank is a long and complex process. Whereas for a smooth flow of business, it is imperative to have ready cash as and when required.

Currency Instability

Import and Export companies make and receive overseas payment, and the exchange rate keeps changing. When you are dealing with millions, this instability can significantly impact your financial planning. An unexpected change in the exchange rate can leave you in a desperate situation.  Also, the procedure of money transfer can be slow and costly. All this will result in your being unable to pay your suppliers and meeting your expenses.

Assistance is available

Though not all, you can overcome some major potential problems by taking help from an excellent financial institution.

Paragon Financial Group has a history of helping importers and distributors with trade funding for the past 24 years. Paragon offers cash flow solutions through cash against documents funding, invoice factoring, purchase order financing, A/R management, credit protection, and account receivables programs.

Let us look at Cash Against Documents (CAD) financing choice in detail:
As the name suggests, Cash Against Documents means an importer would pay for the purchases before receiving the actual products. They make payment on receiving documents. In ensuring complete satisfaction for both exporter and importer, a third party is involved who accepts the title documents and shipping of the exported goods and only releases them to the importer when the payment is received.

The process of CAD transaction includes the following steps:

Exporter or seller prepares necessary shipping documents required by the country of origin (exporter) and the country of destination (importer). One of the document is called an Export Collection Form. This form or bill of exchange is forwarded to the financial institution.

Now an importer or buyer can inspect the goods without taking the title of ownership. Once the buyer is satisfied that the goods meet the quality promised and quantity is as agreed, they release the payment to the financial institution. Once the financial institution receives the payment, they forward the payment to the exporter and the title of goods and paperwork to the importer.

Since both the parties (exporter and importer) benefit out of this arrangement of CAD transaction, mostly the cost of a fee charged by the financial institution is split between both the parties. International trade is a complex transaction. Hence, the small fee charged by the financial institution to safeguard both parties is well worth the expense.

In comparison to the banks, more working capital is available from a private company like Paragon Financial. Paragon is transaction driven compared to the banks focus on your balance sheet. Furthermore, many banks do not possess the experience and knowledge required to handle this type of international transaction. Paragon deals with import financing transactions daily and are well versed in the paperwork involved.

Another financial solution Paragon offers Non-Recourse Invoice factoring. Here is what we do:

  1. You as an importer or distributor provide goods and services to your customers, followed by invoicing your clients.
  2. You send a copy of the invoice to Paragon
  3. Paragon releases immediate funds to you of up to 90% of the invoice total.
  4. Your clients make payments directly to Paragon. After paying the total amount, Paragon gives you the remaining balance after deducting a small fee.

Why as an importer would you like to get immediate cash at the cost of minor fee?

Having access to immediate cash will help you meet payroll needs, pay your suppliers and take advantage of early payments discounts and concentrate on growing your business and clients. On the other hand, if you wait for the payment as per the traditional way, then you limit yourself to your normal cycle of business. As a result, you are unable to grow your business and concentrate on new clients.

Benefits you enjoy on paying a minor fee to a factor for factoring your invoices:

  • Invoice factoring allows you get immediate cash without taking any loan.
  • Since you are not taking any loan, you do not incur any debt or liability.
  • Loan free cash lets you be in full control of your business.
  • You can take advantage of Paragon’s experience in the business. If you are planning on doing business with a new client, let Paragon give you detailed information about the credit history and payment pattern of the prospective client. Paragon acts like an in-house credit department and saves you from entering a bad deal.
  • Paragon is very organized in its business. 24-7, you have access to your online reports. Paragon provides real-time reporting. You can know who is paying on time and you have pending invoices for a long time. We are skillful in making soft collection calls to your customers or applying pressure whenever required. However, every action we take comes only after consulting with you first.
  • Unfortunately, there are factoring companies in the market which require you to factor all your invoices. Once you decide to factor your invoices, you need to stick in such an arrangement. However, Paragon gives you flexibility. We completely respect your right to pick and choose the accounts you want to factor. There may be several reasons; you may not want to factor certain invoices.

What import businesses have Paragon Finance helped in the past?

Since 1994, we at Paragon in the last 25 years have funded every product classification you can buy at Walmart. Here is just a small sample of the following types of US food imports:

  • Meats and meat products
  • Fish and shellfish
  • Dairy products
  • Nuts and nut production
  • Coffee, tea, and spices
  • Grains, grain products, and bakery foods
  • Vegetable oils, olive oil, and oilseeds
  • Cocoa products and chocolate
  • Sauces, essence oils, and other edibles
  • Wines, Spirits & Liquors

We specialize in handling high volume purchase orders and offering swift services. Invoice factoring also opens another area of financial assistance to you, and that is Vendor Guarantee.

Vendor Guarantee

Many times, your supplier or seller requires payment in advance or a guarantee that they will receive the payment. This could be due to multiple reasons like you are new in the business, no strong credit history, etc. An invoice factoring company can provide this guarantee on your behalf to the vendor.

The pre-requisite is to factor your invoices. Remember, you can choose to avail of invoice factoring services without the Vendor Guarantee option. However, you cannot avail Vendor Guarantee without factoring your invoices. Talk to your supplier about this arrangement. Many would happily agree to this arrangement as it assures them of receiving a payment. The factoring company remits the funds to the supplier once you factor your invoices. Any remaining funds after paying off supplier goes to your company.

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