As part of their international development, SMEs need to learn how to use the full range of solutions available to secure their international business operations, and in particular the risk of non-payment to customers, or country and country liquidity risk.
To protect against this, there are several tools available for securing international payments.
1. International guarantees
They are aimed at small and medium-sized businesses wishing to bid on international tenders. This series of guarantees enables a French SME to bid for a foreign contract under secure financial conditions.
a- Bid bond: enables the foreign buyer to insure against the risk of non-conclusion of the contract. This indemnifies the buyer if the seller fails to sign the contract.
b- Advance payment bond: this is a guarantee enabling the buyer to protect himself and recover an advance payment made in advance, in the event of non-performance or poor performance of the contract. It also enables you to negotiate and obtain significant down-payments to finance your working capital requirements.
c- Performance bond: this is a bank commitment to indemnify the buyer in the event of default or non-performance by the seller under the contract. This guarantee reinforces the credibility of an SME on a foreign market.
This set of guarantees can be supplemented by a non-recourse repurchase of the receivable with a French government guarantee, which enables you to strengthen your cash position by discounting or assigning your receivables to your bank.
2. Documentary credit (CREDOC) and stand-by letter of credit
The documentary credit is a means of payment used to secure international trade. It protects both the seller and the customer.
Credoc ensures that the importer receives compliant products on time, and that the exporter is duly paid. The action takes place in several stages (see diagram) in the presence of the buyer, seller and their respective banks.
How does it work?
Once the seller and buyer have agreed on the terms of the exchange, the buyer applies to his bank for a documentary credit, which is then forwarded to the seller's bank. Once the conditions have been met and both parties are satisfied, the buyer's bank will transfer the funds to the seller's bank. In this way, the transaction is finalized and both parties are satisfied.
Stand-by letter of credit
Stand-by letters of credit are a variant of documentary credits. It facilitates trade with a recurring partner. This guarantee is used by both importers and exporters.
If you buy abroad, your supplier is secured by a bank guarantee. You can request that this guarantee include quality certificates to protect you.
Conversely, if you're an exporter, the Stand By letter of credit you receive guarantees that your invoices will be paid when due, as long as you remain within the guarantee envelope and conditions.
We can help you present your request, negotiate it, and set it up with one of your banks.