Cross Border Trade Credit under Central Bank FX Restrictions
Central bank FX allocation queues stretch trade credit cycles, requiring offshore escrow structures and local currency indexation to preserve supplier margins.
Merchanting Trade Structures
Meaning
Business models involve an intermediary purchasing goods from a supplier in one country and selling them to a buyer in another without the goods entering the intermediary’s home country. International firms use merchanting trade structures to manage global supply chains from a centralized hub. The intermediary takes legal title to the goods but never takes physical possession.
Revenue Flow
Booking of the sale and the purchase happens in the books of the intermediary entity. In merchanting trade structures, the profit is the difference between the export price and the import price, minus any related logistics costs. This revenue is often subject to the tax laws of the country where the intermediary is headquartered.
Regulatory Compliance
Monitoring of foreign exchange flows is a requirement for banks facilitating these transactions. Because merchanting trade structures involve payments moving between three different countries, they attract scrutiny regarding the legitimacy of the trade and the accuracy of the shipping documents. Strict adherence to anti money laundering rules is mandatory.
Logistic Path
Coordination of shipping documents ensures that the goods move directly from the source to the end user. While the intermediary handles the financing, the actual transport is often managed by a third party logistics provider who coordinates the bill of lading. These documents must be carefully matched to ensure the intermediary retains control of the payment until delivery is confirmed.
Any delay in the transit of paper documents can freeze the payment cycle and cause liquidity issues for the intermediary.