Trade finance is the financial instruments and products used by businesses to facilitate international trade. Trade finance enables and facilitates importers and exporters to do business through trade. Trade finance is an umbrella term, meaning it covers many of the financial products that banks and businesses use to make business transactions feasible. Trade finance allows companies to increase their activities and revenues through trade. For example, a U.S. company that may enter into a sale with a company abroad may not be able to produce the goods required for the order. However, through export financing or the help of private or public trade finance agencies, the exporter can complete the order. As a result, the U.S. company is getting new business that it might not have had without the creative financial solutions provided by trade finance. Trade credits are an important source of liquidity for global financial institutions that finance the import and export business activities of their customers.
In the past, terminology, credit structures and supporting documentation varied by bank and region. Standardization and consistency of trade credit documentation helps improve dialogue between borrowers, lenders, investors and regulators. BAFT`s Trade Finance Documentation Working Group has developed the BAFT MTLA, a bank-to-bank trade credit framework agreement under english and New York law, with the support of external consultants to provide clear, concise and consistent language for use by industry. Promoting the introduction of a standardized master document improves protection, simplifies the process and efficiency of borrowing and lending worldwide. The BAFT supports its members by publishing and regularly updating a list of countries where trade credits have been signed from primary bank to bank to bank to promote industry transparency between borrowers and lenders around the world. In addition to reducing the risk of non-payment and non-receipt of goods, trade finance has become an important tool for businesses to improve efficiency and increase sales. Trade finance can help reduce the risk associated with global trade by balancing the different needs of an exporter and an importer. Ideally, an exporter would prefer the importer to pay in advance for an export shipment to avoid the risk of the importer taking over the shipment but refusing to pay for the goods.
However, if the importer pays the exporter in advance, the exporter may accept the payment but refuse to ship the goods. The parties involved in trade finance are numerous and may include: In other words, trade finance results in fewer delays in payments and shipments, allowing importers and exporters to conduct their business and plan their cash flow more efficiently. Think of trade finance as the use of shipping or trading goods as collateral to finance business growth. Trade finance is different from traditional financing or credit issuance. General financing is used to manage solvency or liquidity, but trade finance does not necessarily have to indicate a buyer`s lack of funds or liquidity. Instead, trade finance can be used to protect against inherent risks unique to international trade, such as currency fluctuations, political instability, defaults, or the creditworthiness of one of the parties involved. The function of trade finance is to introduce a third party into transactions in order to eliminate payment risk and supply risk. Trade finance provides the exporter with claims or payments in accordance with the agreement, while the importer may be granted a loan to carry out the trade order. Although international trade has existed for centuries, trade finance facilitates its further development.
The widespread use of trade finance has contributed to the growth of international trade. Trade finance allows importers and exporters to access many financial solutions that can be adapted to their situation, and often several products can be used together or in several layers to ensure the smooth running of the transaction. Trade finance helps companies obtain financing to facilitate business, but in many cases it is also a loan extension. Trade finance allows companies to receive a receivables-based cash payment in the case of factoring. A letter of credit can help the importer and exporter enter into a business transaction and reduce the risk of non-payment or non-receipt of goods. As a result, cash flows are improved as the buyer`s bank guarantees payment and the importer knows that the goods will be shipped. Without trade finance, a company could default on payments and lose a key customer or supplier, which could have long-term effects on the business. Options such as revolving credit facilities and accounts receivable factoring can help businesses not only in international transactions, but also in times of financial hardship. Here are some of the financial instruments used in trade finance: With the letter of credit, the buyer`s bank takes responsibility for paying the seller.
The buyer`s bank should ensure that the buyer was financially viable enough to complete the transaction. Trade finance helps both importers and exporters build trust in each other`s relationships and thus facilitates trade. A common solution to this problem is for the importer`s bank to provide the exporter`s bank with a letter of credit that provides for payment as soon as the exporter presents documents proving that the shipment took place, such as . B a bill of lading. The letter of credit guarantees that once the issuing bank has received proof that the exporter has shipped the goods and that the conditions of the contract are met, it will issue the payment to the exporter. Master Trade LoanMaster Trade Loan Agreement Webinar – EuropeAsia-20140916 0904-1.mp4Master Trade Loan Agreement Webinar-20140916 1500-1.mp4 The above documents are only available to BAFT members. If you are not a member, you can purchase these documents through the BAFT shop. Please log in or sign up for a free web account to checkout.
Stacey Facter – BAFTAlain Verschueren – BNP ParibasRuediger Geis – CommerzbankHenry Pfeiffer – JPMorganMichael Avidon – Moses & SingerRobert Gross – Berwin Leighton Paisner. . . .