Due Dilligence

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Executive Summary

The purpose of this report, commissioned by Mr Jim Dickie, is to analyse and answer all discussion questions relating to the case ‘New Modes of Trade Finance’, which describes the current position of Palate-Able Delights (PAD), a niche retailer of various high-end food products, who plans to begin assessing various markets for the commencement of exporting its food products, which it has no experience in.
Consideration was to be given to the applicability of non-traditional online and offline payment and trade finance methods (such as those offered by PayPal and UPS), open account terms and more stringent, traditional finance methods such as documentary letters of credit.
After careful analysis of the circumstances
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Although PAD is interested in trading on open account terms – by far the riskiest for exporters (FITT, 2008), presumably for the potential of greater sales, the risks are somewhat difficult to justify. Specifically, PAD’s a niche business offering high-end, gourmet products – not a commodity-type product attempting to enter a saturated market. As such, while open terms, given their prevalence, may be necessary in markets where competition is high and entry to them is deemed strategically significant, PAD likely commands some level of market pull (demand) in most markets. This suggests that PAD’s assumption of the substantial risks associated with open account terms is somewhat unnecessary and, given its high margins and assumed ability to absorb some additional costs, it should opt for a greater level of security.
This is especially so for small, perhaps one-time customers, with order values of say, under $2,000. Here, non-traditional payment systems such as PayPal or credit card facilities are more appropriate than the complex and time-consuming traditional payment types. Furthermore, these methods would typically involve payment-in-advance, providing PAD with a high level of
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