What is an export trade finance?
Export trade finance is a type of funding service that is specifically used to fund trading ventures. With this service, an exporter can require importers to give partial payments for the goods they purchased. During this venture, banks may assist both parties by providing various forms of support.
Forms of trade finance
As mentioned above, banking institutions can provide various forms of support. These forms offer different features to accommodate the needs of their client. To know more, below are some of the most common forms of trade finance business owners can make use of.
Letter of Credit – A Letter of Credit is a guarantee of payment by the importer’s bank made to the exporter. Because of this, the exporter is required to provide certain documents to prove that they have delivered the right products or services to the importer. However, importers need to provide their creditworthiness to the bank before they provide such service.
Accounts Receivable Factoring – this type of trade finance is the most common form which provides a short-term asset-based financing. This trade finance form also involves selling an invoice that is payable at a later time to a factoring company. With this, the company will advance you a certain percentage of that invoice immediately.
Forfaiting – A forfaiting involves the importer, the exporter and their banks to make arrangements about the deal. However, this form is a non-recourse financing option.
By choosing the right form of trade finance, business owners can obtain wonderful benefits that can help make their business ventures better. Some of the benefits include:
Better cash flow – One of the main benefits of export trade finance service is it allow business owners to properly manage their money. Because of this, they can easily improve their cash flow.
Fast document processing – Using export trade finance can also help business owners to process documents easily. This is possible since they work with reliable financial institutions.
Improve business ventures – Lastly, export trade finance also allow business owners to improve their ventures. By having sufficient finances and assistance from experts, they can attract potential clients.
These are only some of the things that business owners need to be aware of when planning to opt for an export trade finance. Know more about export trade finance on this site.