Commercial Financing Example

A commercial financingIt is an instance that merchants have, (especially importers), to be able to make their purchases abroad or for large amounts of money.

Faced with the dilemma that both parties have, and the doubt that exists about the management of capital and the deliveries of merchandise, the use of the already aforementioned commercial financing, which ensures payment to the company that must send the merchandise and insures the merchandise for whoever gives the payment and needs receive it.

It is clear that a factory on the other side of the world may have great mistrust to send its merchandise abroad and that the buyer wants to release the payment until the merchandise arrives. These types of problems are solved by surety companies, who undertake to make the payment in in the event that any of the parties (usually the buyer) cannot make the payment correspondent.

In the event that any of the parties cannot make the payment, becomes bankrupt, or has temporary insolvency, the surety will pay all the expenses and problems caused.

This financing, becomes a guarantee for buyers and sellers on a large scale, who receive their respective letters of credit, with which they carry out business deals respective.

Trade financing example:

The company "imports clemente S.A de C.V" is about to make a deal with a cell phone factory located in China; The Chinese company Celufonx S.A has a relative distrust in receiving the payment, since it has to send the merchandise and the payment would be received after the arrival in the buyer's country.

For this purpose, the representatives of each of the companies, hire an insurer, which sells them insurance for a fraction of the total cost, (not refundable), and as a consequence they were given respective commercial letters of credit, which support the total cost of the merchandise and the full payment, respectively.

At the time of making the contract for the sale of the merchandise, they present said letters of credit, which when accepted will guarantee the total economic capital of the purchasing company in the event of bankruptcy or insolvency and the total of the merchandise, in case of inconvenience or mishap.