The new emerging markets in Asia and Latin America that are opening up to the outside world represent new possibilities for innovative, flexible businesses as well as for growth in the overall global economy.
This expansion abroad offers businesses the opportunity to widen their margins in less price-sensitive countries and to garner market share.
However, the latest developments in some countries of northern Africa and Europe show increasing international uncertainty that bears significant potential for conflict. For this reason the past few years have seen a noticeable revival in demand for international trade hedging. This trend has been observable since the start of the global financial crisis in 2008/2009.
Minimizing the various risks associated with international commerce is a key objective of trade hedging. Unlike domestic deals, contracts of sale or work contracts with less familiar foreign partners are not always based on the same level of reliability and long-term relations. A simple contract with a foreign business partner offers sufficient security only if the parties involved have built up mutual trust over a long period of time or have a strong connection based on mutual interests. The risks that can be attributed directly to the business partner include collection risk, manufacturing risk, and performance risk. However, there are also risks connected to the country's economic and political situation. These typically include political risk, transfer risk, and currency risk. All these risks must be assessed carefully, and if there are any concerns, an appropriate method of hedging must be selected.
Credit Suisse has the tools you need to ensure protection against non-payment or non-performance. Also when it comes to hedging against currency risk, our wide selection allows you to choose the precise strategy that best suits your company and will help you achieve your goals.
Security and Liquidity through Factoring
In international transactions, it is not unusual to have payment terms of more than 30 days. More generous terms require companies to perform precise liquidity planning. If resources on hand become insufficient to fund ongoing operations, companies often resort to traditional means of finance. Yet, those instruments may provide inadequate or extremely limited liquidity.
An alternative solution to financing would be factoring. By selling accounts receivable to a bank, the exporter immediately receives liquid funds that it can put back into its business operations. The bank performs a credit investigation of every foreign and domestic debtor, and then grants them an appropriate limit. Any defaults within that limit are fully covered, thereby helping to minimize the risks from expansion into new markets.
Your client advisor would be happy to speak with you about our services for international companies. You may also feel free to contact our Business Center at 0800-888-871. Additional information can be found on our website:
Letters of credit and documentary collections offer payment security based on internationally recognized guidelines. A letter of credit is a promise of payment by a bank to pay the exporter a specific amount upon presentation of certain required documents (delivery note, invoice, etc.). Documentary collection is a simultaneous transaction. In this case, the bank assumes the task of collecting payment of the debt for the exporter upon presentation of the appropriate documents.
Security through Guarantees
Bank guarantees and surety bonds ensure payment and protect against non-performance. With these instruments, the bank undertakes to pay a predefined maximum amount on behalf of the exporter or importer if certain conditions are met. This allows the exporter to hedge against a possible dishonoring through non-payment by the importer, while the importer can limit any losses resulting from deficient delivery.