What is a counter-purchase?
A counter-buy is a special type of counter-trade transaction in which two parties agree to both buy and sell goods to each other, but under separate sales contracts.
How a counter-purchase agreement works
One form of counter-purchase is an international trade agreement in which an exporter agrees to purchase a number of goods from a country in exchange for the country’s purchase of the exporter’s product. The goods sold by each party are generally unrelated but may be of equivalent value.
Under a counter-purchase agreement, the exporter sells goods or services to an importer and also agrees to purchase other products from the importer within a specified time frame. Unlike barter, exporters who enter into a counter-purchase agreement must use a trading company to sell the goods they buy and will not use the goods themselves.
In a counterbought, the first contract recorded is the original sales contract, describing the terms under which an initial buyer buys from an initial seller. The second parallel contract describes the conditions under which the original seller agrees to purchase products unrelated to the original buyer. Basically, it is a contractual relationship between two parties who agree, at some point, to do business for each other.
Key points to remember
- A counter-buy is a special type of counter-trade transaction in which two parties agree to both buy and sell goods to each other, but under separate sales contracts.
- International trade agreements will use a counter purchase between an importer and an exporter through a trading company.
- Counterbuying is an example of countertrade, which allows countries with limited liquidity in hard currency to exchange goods and services with other countries.
Other examples of counter-transactions
A counterbought is an example of a larger group of deals known as counterpart transactions. Countertrade is a reciprocal form of international trade in which goods or services are exchanged for other goods or services rather than hard currencies. This type of international trade is more common in less developed countries with limited foreign exchange or credit facilities. Countertrade agreements essentially provide a mechanism for countries with limited access to liquid funds to exchange goods and services with other nations.
Barter is the oldest countertrade agreement. It is the direct exchange of goods and services of equivalent value but without payment in cash. The barter transaction is called a transaction. For example, a bag of nuts can be exchanged for coffee beans or meat. Other common examples include:
- A redeem An offsetting trade occurs when a company builds a manufacturing facility in a country – or provides technology, equipment, training, or other services to the country and agrees to take a certain percentage of the production from the country. the factory as partial payment of the contract.
- A shift is a countertrade agreement in which a company in the future compensates for a hard currency purchase of an unspecified product from that country.
- Offsetting trade is a specific form of barter in which one of the flows is partly in goods and partly in hard currency.
One of the main benefits of clearing trade is that it makes it easier to hold currencies, which is a primary consideration for cash-strapped countries and is an alternative to traditional financing that may not be available in local markets. developing countries. Other benefits include lower unemployment, higher sales, better capacity utilization and ease of entry into difficult markets.
A major disadvantage of cleared trade is that the value proposition can be uncertain, especially in cases where the goods being traded exhibit significant price volatility. Other disadvantages of countertrade include complex negotiations, potentially higher costs, and logistical issues.