Trade finance

Trade finance

What Is Trade Finance?

Trade finance typically represent the financial instruments as well as products which are used by business organizations for facilitating international trade and commerce. Trade finance helps in making it possible and easier for buyers and suppliers for transacting business through trade. Trade finance can be seen as an umbrella term which means it can cover certain financial products which are utilized by the banks and companies to make trade transactions feasible.

Understanding Trade Finance

The general function of trade finance is introducing a third-party to transactions for removing the involved payment risks as well as the supply risk. Trade finance facilitated the supplier with receivables or the required payment according to the agreement whereas the buyer might get extended time in order to fulfil the trade order. 

Types of trade finance

Import Trade Finance 

Importing goods and services can be extremely worthwhile for businesses that are looking to provide new products to their customers, while taking advantage of exchange rates, reduced production costs.

Import finance allows firms to buy commodities from global suppliers on credit from a lender by using trade finance tools. It is usually secured against various documentations within the process flow such as invoices, bill of lading, letter of credit and other specific ones.

Export TradeFinance

It helps suppliers financially who are willing to sell goods to international buyers. It results in fascinating more customers for the product followed by increased sales of the customers, and more profit from those sales.

The exporter may require short term, medium term or long-term finance depending upon the type of commodities being exported. There exist different types and structures of export finance depending on the business needs and the nature of the export transaction.

Further export finance can be classified within

Pre-Shipment Export Finance

It is provided to the exporter when they ask for a certain amount of payment for arranging various necessary things such as raw materials. This finance is needed for processing raw material into finished goods. Once the processing is done, they have to be stored at relevant places and for that some cost has to be paid. Also, for packing and shipment of goods to the port finance is needed. Exporter can apply for this finance once order is confirmed by the buyer and its proof have to be shown in the finance institution for further processing. It is granted for 180 days.  If some kind of uncertainty occurs then this can be extended to 90 days. Maximum allowable period is 270 days. 

Post Shipment Export Finance

Once the shipment of goods towards importer is done the exporter is supposed to make bill that has to be paid by the importer. It’s a lengthy process and takes almost 3 to 6 months to receive the payment from the importer and meanwhile production of exporter can get affected. So, to avoid this exporter presents this bill in the finance institution which will pay for the wages and other services such as shipping charges. Post shipment credit is basically to help the exporter financially till payment from importer is received. So, the production and others work keeps on going.

The parties involved in trade finance are numerous and includes:

●        Banks

●        Trade finance companies

●        Importers and exporters

●        Insurers

●        Export credit agencies and service providers

Trade finance provides credit facilities which covers or fulfils the needs of exporters and importers regardless of their trade category. Trade finance helps SMEs to grow and increase their trade. Export and import finance help in online trading, project finance and corporate finance. It helps to mitigate the various risks involved within the international trade and finance such as legal, political, marketing and financial risks. It prevents the exporters from non-payment and prevents importers from inadequate receiving of goods. Various trade finance companies and trade finance institutions are available to finance clients as per their requirement.

                                    

Trade finance

What Is Trade Finance?

Trade finance typically represent the financial instruments as well as products which are used by business organizations for facilitating international trade and commerce. Trade finance helps in making it possible and easier for buyers and suppliers for transacting business through trade. Trade finance can be seen as an umbrella term which means it can cover certain financial products which are utilized by the banks and companies to make trade transactions feasible.

Understanding Trade Finance

The general function of trade finance is introducing a third-party to transactions for removing the involved payment risks as well as the supply risk. Trade finance facilitated the supplier with receivables or the required payment according to the agreement whereas the buyer might get extended time in order to fulfil the trade order. 

Types of trade finance

Import Trade Finance 

Importing goods and services can be extremely worthwhile for businesses that are looking to provide new products to their customers, while taking advantage of exchange rates, reduced production costs.

Import finance allows firms to buy commodities from global suppliers on credit from a lender by using trade finance tools. It is usually secured against various documentations within the process flow such as invoices, bill of lading, letter of credit and other specific ones.

Export TradeFinance

It helps suppliers financially who are willing to sell goods to international buyers. It results in fascinating more customers for the product followed by increased sales of the customers, and more profit from those sales.

The exporter may require short term, medium term or long-term finance depending upon the type of commodities being exported. There exist different types and structures of export finance depending on the business needs and the nature of the export transaction.

Further export finance can be classified within

Pre-Shipment Export Finance

It is provided to the exporter when they ask for a certain amount of payment for arranging various necessary things such as raw materials. This finance is needed for processing raw material into finished goods. Once the processing is done, they have to be stored at relevant places and for that some cost has to be paid. Also, for packing and shipment of goods to the port finance is needed. Exporter can apply for this finance once order is confirmed by the buyer and its proof have to be shown in the finance institution for further processing. It is granted for 180 days.  If some kind of uncertainty occurs then this can be extended to 90 days. Maximum allowable period is 270 days. 

Post Shipment Export Finance

Once the shipment of goods towards importer is done the exporter is supposed to make bill that has to be paid by the importer. It’s a lengthy process and takes almost 3 to 6 months to receive the payment from the importer and meanwhile production of exporter can get affected. So, to avoid this exporter presents this bill in the finance institution which will pay for the wages and other services such as shipping charges. Post shipment credit is basically to help the exporter financially till payment from importer is received. So, the production and others work keeps on going.

The parties involved in trade finance are numerous and includes:

●        Banks

●        Trade finance companies

●        Importers and exporters

●        Insurers

●        Export credit agencies and service providers

Trade finance provides credit facilities which covers or fulfils the needs of exporters and importers regardless of their trade category. Trade finance helps SMEs to grow and increase their trade. Export and import finance help in online trading, project finance and corporate finance. It helps to mitigate the various risks involved within the international trade and finance such as legal, political, marketing and financial risks. It prevents the exporters from non-payment and prevents importers from inadequate receiving of goods. Various trade finance companies and trade finance institutions are available to finance clients as per their requirement.