Trade finance is the method exporters and importers of commodities and goods use to finance their business deals. A trade transaction requires a seller of goods and services as well as a buyer. Trade Finance allows you to handle your international transactions quickly and efficiently. There are various intermediaries like financial institutions and banks that offer these deals with trade financing. Trade finance facilitates procurement of items for immediate sale or it could be provided to the buyer to enable to meet contract obligations or for storage for future activities.
It relates to the process, purchase or sale of services and goods. Trade financing enables a trading activity to take place and which may be made directly to the supplier. Trade finance is used to cover a number of different forms of methods of payment, from secured syndicated financings to letters of credit and financing. Trade financing provides a clear overview of your financial position and business deal. It allows you to observe each individual deal or it always enquire about existing and previous deals.
Various forms of trade Finance: –
Documentary Collections: – document collections are an alternative to Letter of credit. They form a secure payment method for suppliers whilst alleviating the burden of compliance with more complex Letter of Credit.
Trade Bill facilities:- A Trade bill is produced when the supplier is paid. Terms would generally range from 30 days to 90 days. Trade bill Facilities are a loan with a fixed amount, fixed term, and fixed interest rate
Letters of Credit:- Letter of credit is a form of international payment by way of the buyer’s bank guaranteeing that a payment to a supplier is on time and on the correct, subject to the compliance of the terms on the LC.
The Importance of Trade Finance: –
The trade finance allows the Exporters with limited access to working capital often require financing to process or manufacture products before receiving payments and it also plays a vital role in facilitating international trade particularly in developing and least-developed countries. It is also necessary for the importers who often need credit to buy raw materials, goods and equipment from overseas.
The Trade finance Company offers bank Guarantee and allows overdraft loan terms and capital loans. It allows confirming and accepting a letter of credit as well as Discounting export documents.
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