How to protect parties each other in triangular exports
The triangular trade refers to the buyer-seller-supplier relationship between three regions conducting trade between themselves.
Since they subvert the regular buyer-seller relationship by adding a third party into the fray, it can be quite hard to discern who pays what to whom. But once you know the ins and outs of it, handling export payments can become extremely easy in the future.
Hiding the identities of the buyer and the manufacturer from each other is pivotal in a triangle trade. It sets apart the trade as different from all others. Thus, in concealing the identities of the parties, generating documents can become quite hard.
How exactly do you carry this process out then?
In a triangle trade, the parties hide the prices of the goods, as well. As a result, the external agencies make separate invoices for all of them.
It is important to note than the three parties part of the trade don’t get involved in these procedures much. Financial intermediaries and external agencies handle a bulk of it themselves.
Figuring out the documents is a crucial part of the familiarising yourself with the process. Broadly, there are two sets of documents.
“Switch” Bill of Lading
The buyer forwards this particular document to the supplier for their exports to the buyer.
Second Set of Bill of Ladings
The particular document will contain the buyer and the seller’s information. It is sent from the seller to the buyer and is for customs clearance of exports.
Now, we know all the parts of the process. Let us put it together and learn how it works as a whole.
- The buyer and seller get into a sales contract. The buyer applies for a Letter of Credit for the shipments.
- The seller transfers the letter of credit to the third party (supplier). They don’t include the price of goods, time of shipment, last date for presentation of documents, and expiry date.
- The supplier, then, ships the goods directly to the buyer.
- The third-party presents the draft bill of exchange and other documents to the negotiating bank for L/C negotiation. The seller receives the documents through their transferring bank.
- The seller uses the same Bill of Lading but substitutes his document and draft the supplier gave him with his own. All the rest of the papers reach the buyer through the buyer’s issuing bank.
It might be hard to grasp the first few times. But with experience, practice, and time, you will master it. And it’ll leave you wondering why you ever thought it was hard in the first place.