We have established in another post that there are different types of Raw Cashew Nuts (RCN) in Nigeria. We have also stated (in yet another post) the methods by which the quality of an RCN cargo can be determined in order to know whether the cargo meets with the expected specification of the exporter’s buyer and, also, in order to know the right price to place on the cargo.
Knowing the right method to use at particular times in the season comes with experience and business acumen. It can affect whether or not an exporter over-pays, meet his contractual obligations, buys quality RCN or/and makes profit. Skills are required to ensure that this aspect does not ruin your season and, indeed, your business.
You can either buy wet or dried from the farmers or Local Buying Agents (LBAs). “Dried” cashew nuts are more expensive than the “wet” ones. When properly dried, cashew nuts from Ogbomosho will lose 3-5% of its total weight while those from other part of the country will lose about 10% of their weight hence, the premium on the price of the dried nuts. However, in spite of the premium price on the dried nuts, experience has shown that the farmers/LBAs always cut corners and will not dry the nuts to export condition. This is so that they do not lose up to the expected weight. Therefore, it is always advisable to buy wet and dry to standard yourself.
In terms of payment methods, there are generally four ways cashew nuts, or any other agricultural produce for that matter, are purchased form the farmers or LBAs- advance payment; spot payment; payment on delivery or advance-deposit-and-balance-on-delivery payment. Understanding the dynamics of payments can make or break your export business. Knowing how to deal with your suppliers is more-or-less an art perfected only by experience.
For advance payment, some exporters prefer to invest in the farmers long before the cashew nuts are ready for sale. They deposit money with them, usually huge amount. When the cashew season comes around, parties would then meet to agree on the amount each ton would be sold for (taking note of the going rate at the time) and supplies would be made. The benefit of this is that the exporter is expected to be the first one to be sold to by the farmer immediately the season begins. Another form of advance payment occurs when the exporter pays the farmer or LBA in full before delivery is made to him. The disadvantage of up-front payment is that the farmer/LBA, having already spent your money, may sell the goods to others first in order to benefit more. Also, the quality or quantity (or both) may be lower than agreed upon but you will be force to take them so as not to lose the money you have paid.
For spot payment, the exporter would pay and take delivery of the cashew immediately. It could be that the exporter will go over to the location of the farmer/LBA or agree that they bring the cashew to his own warehouse. Usually, the cashew nuts will be tested to confirm their KOR and other important details before the cashew nuts are accepted and paid for. While there is a lot of security of funds in this method, it may be impracticable at certain periods or slow, especially when they are a lot of exporters willing to buy on more favourable terms to the farmer/LBA. Timing is also a factor. The period in the season when the trade is to be consummated do have impact on whether or not this method will be viable.
Where the advance payment method puts the advantage with the farmer/LBA, the payment-on-delivery method of payment puts the advantage firmly with the exporter. This is because the LBA will have to undertake all the costs of the cashew nuts and transportation to the agreed destination and then the exporter will check and confirm the cashew nuts before payment is made. To pull this off, the exporter has to have some clout, pay far above others, demand for a huge volume, or is interested in buying at time when there is a glut in the market or were there are only few interested buyers. The LBA runs the risk of having the entire cargo rejected or underpriced and so will rarely agree to this kind of arrangement.
The final method is the advance-payment-and-balance-payment-on-delivery method where the exporter will make initial payment to the farmer/LBA and the balance will be made upon delivery of the goods to the exporter. There are instances when the parties may settle for this but it is not a very commonly used method. The risk is shared between the parties yet it leaves each of them quite exposed. Still, it can become very useful where the farmer/LBA is asking for advance payment and the exporter is interested only on payment on delivery.
It is important to know the advantages and disadvantages of each payment method and understand the circumstances where each can be used as well as the kind of farmer/LBA one can adopt certain payment method for. You have to develop the right skill-set in this area for it will affect every other area of your execution and exportation.
