Trade finance facility helps businesses unlock liquidity to buy and sell goods in domestic and international markets. You can use trade finance in lots of different scenarios. However, most often, importers and exporters or buyers and sellers use trade finance to reduce risk, ease pressure on their cash flow, and access capital to fund new opportunities. 

 

At its most basic, trade finance can be a relatively ‘traditional’ loan, allowing a business to buy products or materials that they will later sell for a profit. These loans are often used to help relieve cash flow pressure and manage working capital more effectively. Trade finance can include financing mechanisms like invoice finance or stock finance. Your company can use trade finance to buy commodities, raw materials, stock or other products they need to carry out their business. 

Trade Finance Facility

Trade loans are an important and well-established trade finance technique – enabling finance to be provided until payment for goods is received. Particularly suited to wholesalers and manufacturers, trade loans can be used to fund regular or one-off purchases of goods and raw materials.

How Does Trade Finance Work?

 

 

When you consider that any kind of trade requires that both goods and money change hands – often on a global scale – complicated questions start to arise, especially when parties haven’t worked together before. For example, what if an importer pays an exporter, but the exporter never sends the goods? What if the exporter sends goods to an importer in good faith and the importer doesn’t pay?

 

In any trading deal, both parties want to protect themselves against parties they are trading with not paying or supplying the promised goods. Protection against damages, poor quality, late payments and theft is also critical. To break what would otherwise be an impasse, lenders offer trade finance – this is often possible through various financial arrangements. 

 

Banks can offer letters of credit, for example. In these cases, the importer’s bank provides a guarantee to pay for the goods, usually when the bill of lading is issued. The credit letter is typically issued directly to the exporter’s bank. When the carrier confirms that the goods have arrived in the country they are being imported to, the importer usually has the option to have the goods inspected to ensure they are of the quality, quantity and condition that was stipulated in negotiations. If this condition is met, the importer’s bank will release the payment for the goods. In return, the exporter’s bank will allow the goods to be released into the importer’s care by the carrier. 

 

Documentary credit is another option. Documentary credit is similar to a credit letter, but in this case, a lender will release payment when specific documents are submitted. These can be documents relating to shipping, insurance, purchase orders and so on. The deal and assurance needed by both the importer and exporter will influence which documents need to be submitted to unlock capital. The stringent rules and regulations surrounding documentary credit and how documentation will need to be presented protects both parties because there is a rigorous process that will need to be met.

To consider an application for financing, fill out the  form and send it to us by email along with the project brief, or contact our experts