Export basics

Exporting in its simplest form is the process of selling a locally made product to a buyer in another country

Or exchange of goods or services across the borders of different countries.

Accordingly, the involved parties in export process are:

The product or commodity of interest

The exporter "whether he is the manufacturer of the commodity or another party undertakes marketing only"

The Importer

The export process suffers from some risks that led to the necessity to allocate frameworks and regulating rules for it to get this important process to safety.

One of the most important export problems is the method of financing the deal, or what is known as the payment method.

In the past, payment was limited to two methods:

Advance payment

Which requires high confidence on the Exporter, as this person may not be obligated to complete the transaction or even complete it according to specifications and conditions that are not agreed upon.

Deferred payment

The risk transfers from the importer to the exporter who does not guarantee that the importer will pay the full value of the exported goods.

Accordingly the demand increased for a method that secures the rights and obligations of both parties, which was handled through Documentary Credit

Documentary credit or Letter of Credit L/C shall be discussed in details in separate topics, However we will summarize the idea of LC as follow:

It is the ​​using international banks communication network to initiate, secure and facilitate export and import operations.

Where the importer deposits the value of the transaction with the bank in his country and requests the opening of a credit with this value in favor of the exporting person, in exchange for the exporter's commitment to provide certain documents indicating the shipment of the goods according to the agreed specifications and quantity

LCs are distinguished by the availability of the element of confidence, as it is often irrevocable , and also by the availability of a guarantee from the bank in the country of supply if requested in exchange for a specific commission in what is known as the Confirmation of documentary credit.

The fact is documentary credits practically are the only financial tool ((representing approximately 55% of the volume of international trade financing)) and their use is usually restricted to first-time transactions or when there is no strong confidence between the exporter and the importer

The other common way, it is to pay an advance payment of the transaction value, and pay the remaining part against the shipment documents after shipment is completed.

The reason for not relying entirely on credits as the safest method is their high cost represented by banks' commission on these credits compared to regular transfers.

It should also be noted that some countries, such as Algeria and Ethiopia for example, forces importers to finance imports through documentary credits only.

We summarize all of the above in that the basics of the export process are the presence of a commodity, a seller for it, and a buyer ((from another country)) with the availability of a mechanism for financing the export process.