Trade Finance

Trade Finance is an integral part of the successful completion of an international trade deal, and often remains a key component of long-term relationships between traders across the globe. The business of trade finance can be as straight forward as facilitating payment between various parties in a trade transaction, or as complex as involving structured financing through multiple banks, government agencies and international organizations such as the World Bank.

Financing may be required at various stages, and by any of several of the parties involved. Additionally, trade finance specialists can assist in reducing risks associated with doing business in a foreign country, through several forms of insurance or by providing suitable guarantees in favour of their clients. In the end, trade finance is about four major activities:

Payment facilitation and processing

Financing

Risk Management and Mitigation

Trade Advisory Services

Below are some examples of the value of Trade Finance for various parties involved:

Trading Party Business Need Trade Finance Option/Solution

Producer/Exporter Cash to produce goods for export Pre-shipment Finance based upon receipt of a Letter of Credit from the Buyer/Importer's Bank

Buyer/Importer Cash flow to keep business/production running until merchandise is received from overseas and sold at a profit Buyer Financing - agreed delay in payment to the Importer's Bank, to allow time for sale of goods. This can be effected through a Term Draft or Usance Bill of Exchange with a maturity date (payment due date) fixed at some agreed future date

Importer/Exporter Quick Payment Documentary Collection

Exporter Security against Political Risk Letter of Credit Confirmed by Exporter's Bank (or another acceptable Bank)

Exporter Security against Importer Default or Bankruptcy Insurance through private or government agencies

Importer Security against non-shipment Letter of Credit with proper documentary requirement(s)

Bank Short-term Financing Financing structure based upon a Letter of Credit, where another Bank party to the Deal accepts to fund the transaction for a specified period

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