How to survive as an Intermediary in the international trading business.
"In any business, knowledge is power. In the international trading business, knowledge is survival."
-June Hollister.
Most of you know that I started my brokerage service to domestic and international clients for Physical Commodity Trading less than a year ago with the primary goal of establishing a long-term business relationship that's beneficial to stakeholders and helping small businesses and myself reach the global marketplace and I'm in NO way or shape consider myself a Subject Matter Expert (SME), in fact, I learn every day from some of you that I truly consider an SME and there is no shame of learning from others especially If they are younger than you.
It is indeed my personal opinion that most intermediaries are not trained and trying to honestly trade, but they end up being prey for scammers. They follow the practices of their predecessors and blindly walk in the shadow or footsteps of the intermediaries before them, and the ones before, and so on, without proper knowledge, or even reading while using flawed documents that cannot be enforced and probably never will. Scammers know that and they take advantage of this lack of knowledge and entice people with the promise of success and quick money. We've all been tempted by such promises, and scammers know it.
To survive in the International trading business as an intermediary, you must have sufficient knowledge of your international counterparts - the buyers, sellers, and intermediaries themselves. This is why a comprehensive understanding of the proper procedures, rules, and policies is not just helpful, but an absolute necessity to outsmart the common enemy shared by all parties: SCAMMERS.
If you fail to adhere to the proper trading protocols, you will not be able to successfully close a deal. Therefore, it is essential to have a set of guidelines to follow. Your proficiency in the international trading arena is contingent on comprehending the documentation and procedures involved in finalizing a transaction.
Intermediaries in the trading process handle documents rather than physical products. Therefore, intermediaries must work with well-defined documents. Even though the updated Incoterms rules have minimal impact on intermediaries, it is still essential for them to be aware of their limitations and capabilities to ensure that payments can be efficiently collected.
The Players in the deal
In a typical trading deal, there are players involved, including:
Supplier: the owner of the product and the person in possession of the title
Seller: the person who sourced the supplier and is trading on the title of the goods
Buyer/Seller Intermediary: the principal intermediary who controls the deal and protects the commission and interests of other intermediaries in the chain. They can only sell to an end buyer and can only buy from the supplier.
Buyer: the sourcing intermediary who sources the end buyer.
End Buyer: the person who buys and takes possession of the physical product and title
It is not uncommon to have many sourcing intermediaries involved in a single deal.
A mandate to the supplier is like an agent who acts on behalf of a disclosed principal. However, a mandate is not given lightly; it must be earned after a long-term relationship has been built with the principal supplier. The mandate agent can only act under the instructions of their principal, who must disclose to the end buyer immediately when an offer is made. In closing the deal, the mandated agent would be paid a small sum by the supplier, and they do not receive any commission from the buyer's side of the deal. To earn a reasonable commission amount, a mandate agent has to close many deals with the supplier. Many intermediaries claim to have a "mandate relationship" because they believe it puts them in a great position, but in reality, an intermediary in a chain deal will make more money than a mandate agent.
Misunderstandings can cause many deals to collapse. Therefore, it's crucial to specify whether you are referring to the end buyer or the intermediary buyer when mentioning the buyer and whether you are referring to the supplier or the seller intermediary when mentioning the seller.
The best position to hold in a deal is the controlling buyer/seller intermediary. This individual must possess a thorough understanding of the procedures, rules, and policies and act in the best interest of all parties involved in the deal.
Becoming a mandate holder of a principal may not be a feasible position if you are looking to make significant profits. Instead, it's essential to learn the proper procedures and become a legally defined buyer/seller controlling intermediary.
While understanding the functions of the players in a deal is essential, the most crucial piece of information is to have a thorough understanding of the procedures and rules involved in closing a deal.
The most crucial player in any deal is THE SUPPLIER, as you cannot make an offer to an end buyer without first securing a genuine supplier quote. Without a product to offer, you cannot start a deal. If you issue an offer to an end buyer without having a secured supplier, it can lead to legal trouble, as the contract is a legally binding document.
If a buyer issues a Documentary Letter of Credit (DLC) to your bank account, and you have no product to sell, you may be charged with fraud for offering to sell something you do not have the authority to sell. It's essential never to trust an intermediary who claims to have a supplier. Instead, you must do your due diligence and ask them to step back, ensuring that you protect the intermediary's commission.
A buyer/seller intermediary cannot provide a quote to an end buyer without first securing a genuine supplier quote. This is because the intermediary does not hold title or possession of the product, and therefore, cannot sell or offer it to the end buyer without authorization from the supplier. The intermediary must secure the supplier first and obtain a quote that gives them the authority to sell the product before they can make an offer or provide a quote to the end buyer.
The RFQ (Request for Quote) should include all necessary information such as product name, quantity, price, incoterms, and payment terms. The buyer/seller intermediary should make sure to get a genuine supplier quote before issuing an offer to the end buyer.
It's important to understand that a good offer/quote should have clear and accurate terms, and come from a genuine supplier or seller intermediary. If the offer/quote seems too good to be true or contains vague or unrealistic terms, it may be a sign of a fraudulent deal.
Additionally, the RFQ should be presented in a professional and easy-to-read format, with clear fonts and no distracting graphics or backgrounds. This helps to establish credibility and professionalism and makes it easier for the recipient to understand the terms of the deal.
That's correct! Having a secured supplier is the first and most important step in any deal.?You cannot enter into a contract with an “end buyer” selling nothing. You cannot make up a price on a product you do not have access to, for two reasons
Yes, obtaining a quote from a direct supplier gives the buyer/seller intermediary the necessary authorization to sell the product to an end buyer. This is because the quote from the supplier serves as proof that the intermediary has the right to offer the product for sale. Without this authorization, the intermediary would be committing fraud by offering a product that they do not have the right to sell. Therefore, securing a genuine supplier quote alone is WORTH SO MUCH and is crucial to conducting a legitimate and successful deal.
As a seller/buyer intermediary, your role is to facilitate the transaction between the supplier and the end buyer. You don't actually own the goods, but rather, you have the legal authority to sell the title of the goods to the end buyer. This means that you can transfer ownership of the goods from the supplier to the end buyer without ever taking possession of the goods yourself. It's important to understand this distinction in order to properly execute the transaction and avoid any legal issues.
Remember “If you don't have a Supplier, you cannot make an offer to a Buyer”?
A “Quote” from a supplier does not imply any obligations of the supplier, and It is important for the intermediary to have a good understanding of the supplier's product and production capabilities in order to make realistic offers and avoid any misunderstandings or false promises to the end buyer. This includes knowing the lead time for production, minimum order quantities, pricing, and any applicable regulations or certifications. By having a good relationship with the supplier and understanding their business, the intermediary can negotiate better prices and terms and ultimately create a more successful deal.
In conclusion, securing a genuine supplier quote is the first and most crucial step in international trade. Without a secured supplier, a buyer/seller intermediary cannot make an offer to an end buyer and risks facing fraud charges. It is important to distinguish between a good and bad offer/quote and ensure that all documentation is clear and professional-looking to avoid being dismissed as a scam. As a seller/buyer intermediary, it is crucial to understand your position as the primary intermediary agent and that you can only sell the title to the goods, not possess them. With a secured supplier and a good offer in hand, a buyer/seller intermediary can confidently enter into contracts with end buyers and facilitate successful international trade deals.
Stay tuned for our next article on the other players in the deal and the importance of due diligence and protecting commission in international trade.
?? I am Ahmed, Managing Partner at Ark Trading
??Knowledge is not only powerful, knowledge is SURVIVAL.
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