By: Dina Davletshina, New Business Development
COVID-19 has disrupted nearly every part of our lives. Yes, the public health consequences are tragic. But along with this, small and large businesses alike are feeling significant economic pain. Companies in the consumer goods industry are encountering significant supply chain challenges and quickly shifting consumer spending habits. The retail and the apparelapparel industry in particular are facing their own share of supply chain challenges. The list goes on and on.
During times of such economic upheaval and uncertainty, normalcy disappears, once reliable customers start canceling orders and ask for extended payment terms. Stores suddenly close and it’s unclear whether they will ever open again. Shipping delays become more common and trading partners less flexible.
In this climate, all businesses need to reduce their risk to survive this economic storm. One way to do this is to leverage financial instruments like letters of credit (LCs), which can help achieve the highest risk-adjusted returns.
How Letters of Credit Can Benefit Your Business
Letters of credit offer businesses substantial advantages that are amplified by the uncertainty caused by COVID-19.
Supply chain risks and cancelled orders are a greater risk in this global pandemic, so letters of credit can give you more confidence that you’ll actually get paid.
Most prominently, letters of credit minimize risk for both buyers and sellers. Buyers are that their goods are shipped and documentation is in order before submitting payment. Sellers get the confidence they need to ship goods to their buyers.
Letters of credit are also helpful because they free up capital for both buyers and sellers. By using an LC, buyers do not need to leave deposits to start production. Instead, the LC is opened for the transaction’s full value, letting buyers more efficiently allocate their capital. Suppliers can then borrow against their letter of credit, which can provide them with more liquidity before the transaction closes. It is a win-win for both buyers and suppliers.
Buyers and sellers may be transacting with new parties or others they may not fully trust, letters of credit can include provisions that must be satisfied before the transaction is completed. This can include everything from inspection of the delivered goods to specific delivery times. These provisions can ensure that your goods arrive in the precise manner that you expect – if they don’t, you have the option to reject the goods without payment or to seek a discount for the suppliers errors-
Helping Business Go Forward
It’s unclear when the COVID-19 crisis will end. In the meantime, business has become inherently riskier. There’s a greater chance that your suppliers and customers won’t pay for your goods and services. Because of this, letters of credit can help you continue business as usual while minimizing risk and preserving cash flow. For these reasons, we encourage you to leverage LCs when possible throughout this global pandemic.
At Express Trade Capital, we are happy to help you leverage all the the
To learn more about how we can help you, don’t hesitate to click here.