Commodity export is the exportation of goods or services or a combination of both by business owners. Commodity export increases your profit and facilitates the expansion of your business in the local and international markets. Selling your commodities off the local market is beneficial to your business and the society at large.
Commodity export used to be for big businesses with huge capital, but that’s no longer the case. Today, small businesses can export their goods and services, especially agricultural products. Export processes have been improved to accommodate small businesses through export finance agencies and organizations, advanced logistics services, and corporative societies.
Here are some tips for ensuring a safe and successful exportation of your commodity.
Decide on your export services
Decision-making is very critical in export service because it is the starter that sets everything in motion. Before getting involved in export services, it is advisable to research and identify the commodity you want to sell and your target market.
Also, study the rate of demand for such commodities and the import figures in the market. Identify the cultural, religious, and demographic factors in the market that can affect your business and look up your competitors. Through research, you will find out the potential market for your commodity and the exchange rate between the market and your local market. Then, decide on the export services that you want to provide and plan towards it.
Draft your export plan
Planning your export services should include information about:
- Your knowledge of the commodity: How much do you know about the commodity and its sales? How long have you been in the business?
- Your team: Who are you working with? Can your teammates drive the business?
- Your financial capacity: Can you fund the demand in the business, or does your business need export financing? Some agencies provide financial support to exporters.
- Your product packaging: How will your packaging facilitate the sale of your goods in the international market? Is it similar to the label of another product? Is it unique and attractive?
Understand international payment methods
Payment in international trade involves many risks and losses that can be avoided if you understand international payment terms. Understanding and choosing the right payment methods for your business is essential in building an alliance with buyers and other agents. Payments are made in different methods; understand the merits and demerits of each of them before choosing. It would be best if you minimise risk by choosing the payment terms you understand. Some of the payment terms for commodity exports are:
- Cash in advance: This is a payment made for a commodity before delivery. Commodity exporters benefit from this method because it is less risky. However, most buyers do not engage in this payment method, especially as cases of internet fraud are on a daily increase.
- Documentary collection: Exporters are allowed to use banks to collect their payments after documentary delivery in this payment method. This method is less expensive, but some buyers may still not make payment after receiving the right documentation.
- Letter of credit: The letter of credit involves several payment methods based on the agreement between the exporter and the buyer. The method allows the exporter to choose a bank and guarantees that the buyer will make the agreed full payment after dispatch of the goods. The two parties can agree on a letter of credit method: revocable, revolving, back-to-back, transferable, non-transferable, standby, irrevocable, green, or red clause.
- Open account: This method allows exporters to deliver goods before receiving payment. It is very risky option for commodity exporters because there is usually no guarantee of receiving payment after delivery. The exchange of business is based on a trading relationship between the two parties.