Trade Finance

Trade finance is an umbrella term for all the financial instruments and products that companies use to facilitate international trade and commerce. For this, third parties, apart from importers and exporters, participate in the process.

The key role of this facility is to provide the right tools to overcome the challenges during the trading process. It also allows you to maintain a cash flow for your business while mitigating the risk.

The main objective of trade finance is to introduce third parties between importers and exporters to reduce the risk associated with transactions. All the parties involved provide the necessary tools to streamline cross-border trading. Here is how it works:

• Importers and exporters get lines of credit from banks and financial institutions

• Banks and financial institutions provide a letter of credit to reduce the risks associated with transactions

• The goods are insured by the insurance company against any damage during transit

• Banks and financial institutions exchange the documents on behalf of importer and exporter to guarantee confirmed trade 

• They ensure that both parties fulfil their side of the bargain and meet the specified conditions

• They also fill the payment gap if needed  

• Funds are released by the exporter based on factoring to maintain cash flow 

Here are all the entities that make trade financing possible and their respective roles. 

• Exporters

This is the party that produces or supplies the product which is to be traded across the border. 

• Importers

Importers are recipients of the goods exported during the trading process.

• Financial Institutions

This party provides instruments required for trading, such as letters of credit and trade credit insurance.

• Insurance Companies

They play the role of insurance provider against the situation of non-payment or damage to the goods.

• Export Credit Agencies (ECAs)

These are government and semi-government agencies that provide financial assistance to the exporter.

There are different instruments and trading solutions that you may choose for streamlined operations. Here are a few types of trade finance products: 

• Documentary Collections

The exporter provides all the documents to their bank, which are then delivered to the importer's bank in order to clear the payment.

• Factoring

A type of receivable purchase where a business sells its outstanding invoices to a factor at a discount in exchange for cash.

• Import Financing

A short-term loan that provides importer funds for the payment of goods, which can be later paid after the sale of the product.

• Export Finance

This allows the exporter credit to purchase the supplies and the cost of loading the goods for transit.

• Letters of Credit

A contract that guarantees payment to the exporter by the importer bank after the reception of the goods.

• Trade Credit Insurance

An agreement that covers the loss of the exporter in case of non-payment by the importer.

• Supply Chain Finance

This includes solutions to reduce payment delays to maintain cash flow and reduce financial stress.

Here are some of the benefits of opting for a trade finance facility for both parties:

• It provides better financial security to both importers and exporters 

• It eliminates any possibility of miscommunication, as banks and financial institutions are involved

• It makes cross-border transit of goods faster and hassle-free

• It reduces the risk of payment defaults by the importer

• It helps both parties maintain better cash flow throughout the trade process 

• It gives businesses the confidence to increase their trading and profit

• It helps boost the economy of the nation

Irrespective of the business size, anyone can opt for trade finance solutions. This allows more people to participate in import and export activities for the expansion of their business. Here are some people who can use this facility: 

• Manufacturers 

• Importers 

• Exporters

• Small and medium-sized enterprises 

• Automobile companies 

The key providers of this facility include:

• Banks

• Financial institutions

• Invoice financing companies

• Trade finance houses

To apply, you must meet the following eligibility criteria: 

• You must be an individual above 18 years of age

• Proprietorship, partnership, private limited companies, LLPs, and registered cooperative societies can apply

• Business must be functional for 2 to 4 years 

Reference of all T&C necessarily refers to the terms of the Partners as regards to pre-approved offers and loan processing time amongst other conditions.