Importers face a challenge: securing financing for orders in an industry where collateral requirements often surpass their available assets. This dilemma is intrinsic to the trade: importers frequently lack assets like real estate or equipment that lenders typically demand. Moreover, mainstream lenders rarely accept in-transit shipments of goods as collateral.
This issue resonates deeply within the community of importers sourcing products from Chinese suppliers. By default, Chinese suppliers demand upfront payment for their orders. While a deposit might initiate production, only full payment ensures the goods’ timely dispatch.
These stringent payment conditions severely constrict import businesses. Essentially, importers are confined to orders they can afford with their existing working capital. The logical remedy seems to be securing trade credit from suppliers, but this process is often easier said than done. Chinese suppliers, especially those unfamiliar with a buyer’s trading history, are hesitant to extend credit to international buyers.
The Sinosure solution
Hence the existence of Sinosure. This is the commonly used name for China Export & Credit Insurance Corporation, the state-owned trade credit insurance agency. Sinosure was set up specifically to address the tricky problem of trade credit. It allows importers outside China to negotiate deferred payment terms with their suppliers by insuring their trade contracts.
According to Ceoworld.biz, with a Sinosure policy, Chinese exporters gain the security they need to extend credit to their foreign buyers, and those foreign buyers are able to grow their business thanks to the deferred payments that allow them to escape the constraints of their working capital.
Once Sinosure has carried out a credit investigation, it will assign the importer a credit limit – the maximum amount that the importer’s orders can be insured for by Sinosure. The exporter then obtains an insurance policy from Sinosure and registers their contract with the importer at Sinosure. With the credit limit and the insurance policy in place, the buyer and the seller can negotiate credit payment terms.
A new paradigm
So we believe that a paradigm shift is in order. The existing paradigm in the import business is:
Find a supplier
Agree on quality and prices
When, in fact, the paradigm should look like this:
First, secure avenues of financing
Include a Sinosure insurance policy as one of the criteria when choosing a supplier
Find a supplier that has a Sinosure insurance policy, is ready to negotiate credit terms, and meets price and quality requirements
Once you’ve done this, as an importer, you’re likely to see your business become more efficient, and your orders grow, as you will have eliminated suppliers who keep you constrained to your existing working capital.
When importers begin to think of themselves as being in the supply chain and trade finance business, it ensures that they prioritize those suppliers who can help their business grow. That’s not just good for the importers in question, it’s good for trade – and the economy – as a whole.