Trade Finance
Trade Finance facilities are used for funding trade flows. Usually import or export, but also for domestic trade.
These specialist facilities are used to reduce or mitigate the various risks involved in a trade transaction.
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The competing demands of a seller requiring payment for their goods or services, and a buyer wanting to ensure he is paying the correct price for the quality and quantity of goods, can both be met with a well-structured trade finance facility.
Types of Trade Finance Products
Bonds & Guarantees
Bonds and Guarantees are designed to give a buyer more confidence that a seller will fulfil their contractual obligations.
They enable a buyer to claim a penalty payment from a third party if obligations are not met.
Common forms of bond include Tender Bonds, Performance Bonds and Advance Payment Guarantees.
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Letters of Credit
Letters of credit (or documentary credits as they are also known) are issued by a buyer's bank to a sellers bank. They provide a guarantee of payment if the seller can provide evidence that goods have shipped in accordance with the buyers' requirements.
They provide assurance to the seller that they can go ahead and manufacture their product confident that they will be paid upon delivery of the goods.
Trade loans
Short term loans, that can be used for
pre or post-shipment finance.
Typically for a period of 2-3 months (no more than a year), this kind of loan is provided to bridge a funding gap between paying a supplier and getting paid by the customer.
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Trade collections
Trade Collections, Documentary Collections or "cash against documents" is another way for an exporter to retain control until the importer has paid.
Shipping documents are submitted through the banking system to the banks who hold them on behalf of the exporter until payment is made.
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