Belco Global Foods Harvard Case Solution & Analysis

Introduction

Belco Global Foods is an international company that is involved in the distribution of food. It is currently exporting to almost 125 countries around the world and the amount of sales it is $1 billion. Before making any type of sale, the financials of the customers are taken into account in order to avoid any further hurdles.

Moreover, this is critical for the company in order to maintain strong financial position and the reason behind this is the lower gross margin of Belco global foods. The customers have great reliance on Belco Co. because of the high quality food that is provided.

Question # 1

Financing Arrangements  and Payment Terms

There are several financing arrangements and payment terms that provide assistance in supporting the international trade in order to win the customers. Firstly, Belco can offer cash in advance because the company will be able to avoid the credit risk by having the cash in advance before the transferring of goods ownership.

This financing arrangement will prove to be beneficial for the company because of the greater risk attached to the international trade. The other terms of payment include open account transaction. This type includes the shipment and delivery of goods before the payment is due from the customer. The time period related to the international sales is usually 60 to 90 days.

However, the first financing arrangement that can be adopted by Belco is in which the company will have to enter into an agreement to repurchase the goods it has just sold or may repurchase the same unit. Belco can also commit that the third party will purchase the item and later on, Belco may repurchase the item from the third party. Apart from that, the existence of the financing arrangement is more likely when there is a guarantee of the resale price.

Question # 2

The type of considerations that will take account of the terms on the basis of which Belco performs trade with its customers is comprised of the credit terms, which should not exceed the 30 day time period. Moreover, Belco would also have to take account of the other suppliers’credit terms that are operating in the same sector.

Despite this, Belco will have to stay aware of any unique staregty that is adopted by its rivals. Belco deals with its customers on very strict terms, which is why it was able to avoid severe losses in the past. It is obvious by taking account of writing off based on the bad debts, which only comprises of 0.00001 percent of sales.

On the other hand, the credit terms adopted by Belco global resulted in better relationship with its customers as well as increased revenues. In addition to this, the credit team was also introduced by the head of the global credit in order to keep track of the outstanding amounts from the customers to avoid bad debts. Belco had almost $100 million outstanding in the accounts receivable with an interest rate of 10% and a maturity period of 30 days, respectively.

Question # 3

By taking account of the two companies, there is a difference between both of these prospective customers on several basis. Firstly, it is worth mentioning that the relationship with business customers make a lot of difference. Currently, the second company named, Carne Borinquenis,has dealswith Belco since last 30 years.

Moreover, the sales turnover of this company is above $10 million, which is quite higher than the company based in China named, Szechuan Supersellers, whose turnover is almost $1 million merely. However, the amount of information that is provided by the first company is nil as compared to the vast amount of information made available by Carne, which includes the website of the company and the well-staffed sales team,therefore the second company is recommended.

Apart from this, Belco has to take into account the credit terms that have to be offered to these two clients. The credit terms that can be offered to the second company can be flexible due to the long term relationship as well as the healthy revenues.

Despite this, the credit terms will be offered to the first client due to the size of the business, its time period of the relationship, and its revenues. Moreover, one of the most common credit terms is the consideration of the amount of days offered to each customer...........................

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