Commodity trading, or as popularly called, international trade, is a constantly ever-growing industry fueled by the trade of thousands of various types of commodities amongst nations and entrepreneurs located all over the world.
But for most entrepreneurs to close a lot of these transactions, they work with a lot of commodity brokers to find them buyers & sellers located all over the world. Sometimes these brokers are individuals living in the country the seller or buyer is prospecting, and other times, it could just be a broker who has connections all over the world to facilitate trade.
But despite the wide use of brokers by international trading firms to facilitate transactions worth billions of dollars yearly, many brokers go unpaid because the exporter or importer either cut them off the moment they get into the picture or they find some flimsy excuse to not pay them.
Since the first route to becoming a commodity trader is usually commodity brokerage, it is important that new and existing commodity brokers learn how to protect themselves from dubious exporters or importers that might cut them out of transactions.
To help commodity brokers avoid this, here are 3 ways commodity brokers can secure their commissions in an import/export transaction (international trade transaction).
See Also: 8 Highly Profitable Agricultural Products To Export From Nigeria To International Buyers
1). Sign A Commission Agreement:
In every international trade transaction, either the seller or buyer is requested to sign a Master Fee Protection Agreement with the broker, depending on who he or she represents in the transaction.
This agreement has to be carefully negotiated by the broker and their client because most sellers or buyers would put in unrealistic terms in the agreement for the brokers to sign, especially since most brokers would be desperate to sign anything.
For payment security, get a contract signed with the buyer or seller before you make any introductions, and it should state that you’re paid your commission whenever any transaction is done and completed between both parties through whatever means.
If the buyer or seller only insists that they will sign a contract with you as the broker after introducing the other party and signing a sales & purchasing agreement with them, then insist that the statement be sent via email and it should have an indemnity at the bottom of the email stating that the statement is binding by law.
See Also: How To Build A Successful Export Business From Scratch: The Complete Guide (Online Course & eBook)
2). Have The Seller Or Buyer Issue You A Payment Guarantee From Their Bank:
Sometimes signing a contract and hoping for the best on receiving your commissions from the party you’re representing is not enough. Depending on the type of client you represent, you may need to go the extra mile to request that they issue you a bank payment guarantee for your commissions after signing the sales contract with the other party.
When you do this, the amount in the guarantee issued is redeemable upon the success of certain conditions, and if all goes well between the buyer and the seller, you’d irrevocably get paid by your client’s bank.
See Also: How Commodity Trading Works: The Complete Guide To International Trade
3). Demand A Transferrable Letter Of Credit:
If you have zero trust in either the buyer or seller paying you your commissions but can prove to either party that the other party you’re presenting is the only person that can really deliver on the demand based on sensitive requirements, you could request that the buyer issues you a transferrable letter of credit, which you’d go on to transfer to the seller of the commodity.
This only works for commodities that are not easy to get from just anyone, and so, the buyer would have little choices and would end up sending you this LC type.
When you use a transferrable letter of credit, the chances of the buyer and the seller knowing each other becomes very slim since the payments would come in through your bank account before it gets to the seller.
See Also: Understanding Letters Of Credit And How To Ensure You Get Paid: The Complete Guide
To Sum It Up
Securing your payments in any import/export transaction is paramount before going too far with either the buyer or the seller. Most clients would circumvent you the moment a transaction is done, and if the agreement was strictly based on just word of mouth, you’re already the fool in the deal.
Everyone always tries to get an edge in any transaction, and as a commodity trader, you should start by securing your commissions before going too far with any client.
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An Important Point
Startup Tips Daily Media’s sister company, Globexia Limited, is a global commodity trading firm that exports agricultural products like Sesame Seeds, Raw Cashew Nuts, Dry Split Ginger, Soybeans, Dry Hibiscus Flower, Tiger Nuts, and much more agro commodities from Nigeria to international buyers around the world. The company also exports solid minerals like muscovite mica and Lithium ores, and facilitates oil and gas trade within Nigeria.
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What are your thoughts on how commodity brokers can secure their commissions in an import/export transaction? Let me know by leaving a comment below.
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