How important Trade financing is for Business
The term “trade finance” is generally reserved for bank products that are specifically linked to underlying international trade transactions (exports or imports). Global and local banks support international trade through a wide range of products that help their customers manage their international payments and associated risks, and provide needed working capital. Trade finance includes factors like export credit and insurance and activities such as lending, issuing letters of credit. Trade finance supports capital goods by longer-term credit and products typically carry short-term maturities.
The principal alternative to bank trade finance is inter-firm trade credit between importers and exporters, which is commonly referred to as trade credit. This comprises cash-in-advance transactions, where payment is made before shipment, and open account transactions, where goods are shipped in advance of payment. Inter-firm trade credit entails lower fees and more flexibility than trade finance, but leaves firms bearing more payment risk, and potentially a greater need for working capital.
As Nowadays, the transactions in trade becoming more flexible and expand in volume and demand for these technologies has increased more.
Products of Trade financing: –
- Letter of credit: A letter of credit is a letter from a bank that ensures that a buyer’s payment to a seller will be received for the correct amount and on time.
- Bank Guarantee: – A Bank Guarantee is an alternative to providing a deposit or bond directly to a supplier or vendor. There are 6 types of Bank Guarantee such as Tender Bond, Advance Payment, Performance bond, Financial, Retention, and Labour. It is an unrestricted activity provided by the bank on behalf of our customer.
- Export: – Exports are one of the oldest forms of economic occur on a large scale between nations that have few limitations on trade as in subsidies and tariff and economic transfer.
- Collection and discounting of bills: – it is a most important component of trade service offered by the banks.
The Trade finance is certainly very necessary as well as with this Business may achieve business guarantee funding important to ensure business success.