Trade Finance - a set of techniques or financial instruments used to mitigate the risks inherent in international trade to ensure payment to exporters while assuring the delivery of goods and services to importers. Trade Finance is instrument to support Trade and Commerce, both internationally and domestically to Clients.
Below are a few of the financial instruments used in trade finance:
Lending lines of credit can be issued by banks to help both importers and exporters.
Letters of credit reduce the risk associated with global trade since the buyer's bank guarantees payment to the seller for the goods shipped. However, the buyer is also protected since payment will not be made unless the terms in the LC are met by the seller. Both parties have to honor the agreement for the transaction to go through.
Factoring is when companies are paid based on a percentage of their accounts receivables.
Export credit or working capital can be supplied to exporters.
Insurance can be used for shipping and the delivery of goods and can also protect the exporter from nonpayment by the buyer.
