The Facts You Need To Know About Trade Finance

by Frasers Trade Trade Finance Services London

Finance for trade makes a very important deal in your business. It makes the import and export transactions possible for an entire range of small businesses that are importing their first private-label from overseas to all the multi-national corporations importing of exporting large amounts of inventory around the globe each year.

For smaller businesses, they have limited access to loans and other forms of interim financing options that can cover the costs of the goods they plan on buying or selling. Even if these businesses have a confirmed order for products, many banks won’t approve the loans. In fact, they might overdraft protection for such types of transactions.

It is impossible for business owners, both small and large, to get their money tied up in the shipment of goods that mostly takes around four to six weeks or more than time to arrive from the overseas manufacturer.

On the contrary, companies that export large amounts of goods can’t afford to wait for the time till their export products have arrived at a foreign destination weeks later before their payment can be cleared.

How does this process work?

There are trading intermediaries such as banks and other financial institutions that can offer help in such financial transactions between a buyer and a seller. These types of companies import finance to provide you money for the business transactions between the buyer and the seller. These transactions can take place either domestically or internationally. The availability of such resources has made it easy for international trade to carry on without any breaks and hassles on either side.

The trade financing aspect covers the different types of activities including the issuing letter of credit, lending, forfeiting, export credit and financing, and factoring. This process involves several different parties including the buyer and the seller.

The following are some things that you need to keep in mind about import credit or trade finance.

It reduces payment risk

This is probably the biggest reason why people like indulging in such services. Trade finance has evolved to address all the risky payments to exporters and assuring the importers that all their goods ordered have been carefully shipped. This way, the importer’s bank will provide the exporter with a letter of credit to the exporter’s bank as payment once is shipped and documents are presented. On the other side, the exporter’s bank can give him credit passed on the payment and everything works in a simple and easy way.

It reduces the pressure on both the importer and the exporter

Trade finance has led to the enormous growth of economies across the globe because it helped in bridging the financial gap between the importer and exporter.