Know More About Trade Finance And Its Scope
Seller can be an exporter and a buyer can be an importer. Trade can be facilitated by various intermediaries such as banks and financial institutions. During the purchase or sale of goods the seller or exporter may ask the purchaser or importer to pay for the goods being shipped in advance and to reduce the risk the purchaser may ask the seller to document the goods that has been shipped by him. Now this task of documenting the goods is done by the banks by providing various supports such as letter of credit or Trade credit insurance. For example : The bank of importer can provide a letter of credit to the exporter or exporter's bank which will be provided to them for payment upon presentation of documents such as bill of lading. On the basis of export contract, the exporter's bank may make a loan to the exporter. Although this is a kind of cumbersome process but the letter of credit system is one of the most popular Trade Finance mechanisms. In order to secure orders from customers, most businesses have to offer a credit term of 30 days. In this method of financing, the bank of the importer provides for paying for goods imported on behalf of the importer to the exporter.
Often, waiting for stock to arrive from overseas or the cost of holding the stock can slow down the sales growth. In such situation Trade finance facilities enables the seller to access their cash that is tied up in the debtors or purchaser. These facilities provide future benefits. These facilities are mostly needed by people who need a smooth cash flow in their businesses. This way they can pay their offshore suppliers and receive funds from their customers in a really fast manner. It helps to manage the capital required for international trade to flow on smoothly and effectively.
The typical trade services offered by a bank are- the letter of credit, bills for collection, guarantees, financing, export LC advising, LC safekeeping, LC checking and negotiation, pre-shipment export finance and many other relevant documents preparation.
The trade financing products are specialized bank products which are designed to reduce the risks relating to the business payments and the uncertainties that are associated with commercial transactions, thus this facilitates the trade. Trade is done smoothly with the support of bank. The other companies involved in this financing scheme are financers, insurers, and export credit agencies as well as other service providers. According to the world trade organization, 80-90% of the international or global trade is reliant on this method of financing, thus proving its vital importance to the global economy.
Often, waiting for stock to arrive from overseas or the cost of holding the stock can slow down the sales growth. In such situation Trade finance facilities enables the seller to access their cash that is tied up in the debtors or purchaser. These facilities provide future benefits. These facilities are mostly needed by people who need a smooth cash flow in their businesses. This way they can pay their offshore suppliers and receive funds from their customers in a really fast manner. It helps to manage the capital required for international trade to flow on smoothly and effectively.
The typical trade services offered by a bank are- the letter of credit, bills for collection, guarantees, financing, export LC advising, LC safekeeping, LC checking and negotiation, pre-shipment export finance and many other relevant documents preparation.
The trade financing products are specialized bank products which are designed to reduce the risks relating to the business payments and the uncertainties that are associated with commercial transactions, thus this facilitates the trade. Trade is done smoothly with the support of bank. The other companies involved in this financing scheme are financers, insurers, and export credit agencies as well as other service providers. According to the world trade organization, 80-90% of the international or global trade is reliant on this method of financing, thus proving its vital importance to the global economy.