Banking systems define trade finance solutions as the financial process by which the period between receiving payment from customer and paying supplier is bridged by loans offered by financial institutions. The solution matrix is likely to include lending, issuing of letters of credit as well as export credit and insurance. The use of trade finance is found in domestic trade situations as well as international import and export service spectrums.

Types of trade finance for exporters and importers

The financial help from capital providers will first assess the industry and the nature of your business before proposing a solution to aid you. The support these organizations will provide will be in line with the ecosystem and the market forces influencing your industry or section of the business world.

The primary options of help availed by businesses is Letters of Credit, Import Export Finance, Contract Finance, Supply Chain Finance along with Bank Guarantee and Factoring.

Most banks and financial institutions interested in offering such solutions for purposes of easing of trade will typically begin an assessment of the trading cycle. The financial aid package will be based on such assessment.

  1. Letters of Credit are a very standard method to extend finance for purposes of trading gaps. The provider will give a guarantee to the seller that it will receive payment. The LoCs as they are commonly called is technically financial documents which assure a seller that the third party, which is the bank will pay in case the buyer will default with payment.
  2. Import Export Finance is typically availed when businesses need a stop-gap arrangement between receiving goods and remitting the payment into importer accounts. This will be the perfect arrangement to allow companies to bridge the needs that arise between challenges and expenses. The credit of assessment in terms of foreign currency payments in a globalized economy is critical here.
  3. Supply Chains will also be able to bridge such finance gaps by selling an invoice to such financial institutions and enjoying liquidity. This will set the rate of prediction for inflow of orders and the opportunities which arise during the path of trading.
  4. Contract Finance will act as a loan for a brief period of time and will ensure there is proper working capital provided, and all export contracts are satisfied.
  5. Bank Guarantee is an option for any form of insurance and will provide the necessary credibility that suppliers seek. The guarantee is that the lender will give payments in case of failure of payment.
  6. Factoring is a method for releasing capital against invoices for gaining instant cash or capital by selling them. This method of factoring will ensure the release of short-term capital to the value of 90% on an invoice.

Trade finance is necessary for the following types of business

The ideal applicants for availing any type of trade finance are businesses which have a fast-pace of transactions. They will ideally be working with a supplier with legacy transactions and with distributors and are also engaged in the retailing and export businesses.

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