The strength of the U.S. dollar in recent months has been a headwind for U.S.-based companies, particularly those that generate a large portion of their revenues overseas.
Goods leaving the United States bound for other countries have become more costly, causing exports to fall and the federal trade deficit to rise to the highest level since 2008 (according to the latest U.S. Commerce Department’s trade numbers). And as Chief Economist Scott Anderson discusses in his recent economic outlook, worsening trade performance and declining business investment and industrial production have dominated the U.S. economic landscape.
Against this challenging backdrop, many U.S.-based companies are searching for ways to dial up their competitiveness. By implementing smart trade strategies, businesses can put themselves in a stronger position across their footprint, solidifying their commercial relationships and leveraging their trade flows to meet financial targets.
Here are four trade strategies that may help your business be more competitive and agile wherever it operates in the world:
1. Secure and strengthen relationships with key commercial partners. Buyers and suppliers typically have competing interests: A buyer wants to delay payment for as long as possible, while a supplier wants to receive a payment as soon as possible. A banking partner can serve as an intermediary to bridge the otherwise disconnected interests of buyers and suppliers. Using solutions like trade-instrument financing or receivables monetization, it’s possible to address both parties’ payment needs while helping to build stronger trading partnerships, regardless of currency fluctuations.
2. Establish relationships with new commercial partners. Expanding your company’s reach — both in your home market and abroad — can be a critical component of driving growth. It’s even better when you can compete in new markets with new commercial partners without altering your way of doing business.
Many of our clients, for example, are U.S. exporters selling to foreign buyers that typically want to pay with extended payment terms. If the foreign buyer can have its bank certify the invoice, we can assume the risk of the buyer’s overseas bank to pay the U.S. exporter early, subject to credit approval. By shifting the risk of the overseas buyer to the overseas bank, this can help protect a U.S. exporter against losses.
3. Reduce risk related to commercial contracts. While companies rely on buyers and/or suppliers, doing business with external partners can create credit and concentration risk. Companies can implement strategies to efficiently mitigate the risk related to a supplier or a buyer.
For example, a company that has a large portion of its receivables tied up with a single buyer can work with its bank to set up a receivables purchase facility that can transfer payment risk to the banking partner, reducing the risk concentrated with that single entity.
4. Extract additional source of liquidity related to companies’ commercial contracts. Trade finance experts can analyze a company’s trade and supply chain cycles to extract alternative and incremental sources of buyer or supplier liquidity. During periods when the U.S. dollar is strengthening, companies can extend more attractive payment terms to buyers. Foreign buyers may be willing to pay a higher price — relative to a strong dollar — for the products, materials, or services they need if they can negotiate more favorable payment terms, particularly if liquidity tightens overseas or supply is disrupted.
For example, Bank of the West offers a unique asset purchasing solution on foreign high-quality or insured receivables that allows a seller to accelerate its collection cycle, creating incremental liquidity with no disruption, as typically both the collection flow and the accounting treatment remain unchanged.
To learn more about how Bank of the West and its parent, BNP Paribas, can help your company be more competitive by implementing smart trade strategies across its footprint, please visit our website.
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