Trade Facilities

Trade Facility

What Is Trade Finance?

To put it simply, an exporter expects an importer to provide advance payment for items shipped. Naturally, the importer wants to minimize risk, therefore they ask the exporter to provide proof that the items have been sent. The importer's bank helps by giving the exporter (or the exporter's bank) a letter of credit that guarantees payment upon presentation of specific documents, such as a bill of lading. On the basis of the export contract, the exporter's bank may grant the exporter a loan.

Depending on how the transaction will be handled and how proof of performance will be provided, the type of document utilized in the process can vary (i.e. bill of lading in order to show shipment). It's important to keep in mind that banks only work with documents, not the actual goods, services, or performances to which the documents may be related.

What Are A Few Trade Facilities?

A few examples of trade facilities are as follows:

  • Letter Of Credit

    A letter of credit, often referred to as a documentary credit, bankers commercial credit, or letter of undertaking, is a payment method used in international trade to give a creditworthy bank to a products exporter an economic guarantee.
    Benefits of Letter Of Credit:
    • A seller is guaranteed by requesting an adequate letter of credit that they will receive their money in full and on schedule so long as they produce the necessary paperwork in a timely manner.
    • A letter of credit gives the buyer the assurance that the seller will uphold their end of the bargain and provide written evidence of this.
  • Trust Receipt Loan

    A trust receipt is a notification that a bank has released goods to a customer while keeping ownership of the transferred assets in its possession. In a deal containing a trust receipt, the bank still owns the goods, but the buyer is permitted to store them in trust for the bank for use in production or sales.
  • Cheque Discounting

    Businesses that accept post-dated checks from customers in exchange for the goods or services they provide might take advantage of a product called post-dated cheque discounting. High liquidity is crucial for any business' viability in the current business environment. Cash-based businesses have a significant advantage over their rivals. Cash purchases offer businesses a number of benefits, the most significant of which is a stronger negotiating position to obtain cheaper pricing and discounts.