Why IRAN is a credit market & Cash business model won`t work?

I have been faced with many cases that when I was negotiating or consulting a client for IRAN market entry, from the client side, doing business in cash method was the only option. For some that was the dead end & stopper for doing business in IRAN and for others after a while, they adapted to this market. Usually “Cash-and-carry” refers to a business model that virtually excludes all credit transactions, requiring up-front payment for all goods and services.

Doing cash business and deals are very ideal and will reduce the risk and help the cash-flow but when it comes to IRAN many companies have tried and could not be able to implement such approach and the following are the main reasons why:

• Customs clearance, which is time-consuming, complicated and unpredictable procedure. depending on which port you choose for importation, the normal duration to get the stock cleared is between 30 to 45 working days and in some cases can go more than that which is beyond your control. That is why cash payment is not a good option in many cases for Iranian companies.
• The nature of IRAN market is based on credit sales (PDC), it means almost every layer in the RTM funnel is doing business based on credit terms. The term will be defined based on the product, for example for IPhones, it is from 7 up to 15 days PDC payment. This means that after 30 to 45 days waiting to get the stock cleared from the custom, when the sales happens, collecting the money is not going to happen immediately and takes time.
• The interest rate in IRAN is among the highest in the world and there are two kinds of rates, open market (36% annual) and the Banking interest rate is around (18% annual). This factor must be considered and added to landed cost depending on the term the product will be sold.
• Because of political issues in IRAN, usually, the local companies when it comes to working with foreign companies/Vendors, don’t like the cash business model. first of all having credit line from the other side will give them confidence and they will consider the relationship more like partnership. The other point is that from their side, having credit line is a sign that of the Vendor is serious about IRAN and the relationship will be long term.

Don’t Reinvent The Wheel, Unless You Plan on Learning More About Wheels!

Iman Soltani