What exactly is trade finance? Trade finance involves managing capital which is made within a business buying stock for onward sale.
That is, you can fund your National or International trade, also known as export finance or import finance.
There are various types of trade finance solutions that can be structured:
Finance is made available for the client to pay for the goods (works like an overdraft). The lender will advance a % against the existing stock. Structured trade finance is where payment is made by the trade finance company directly to the supplier of the goods. This can be used for domestic purchases or for imports (import finance).
The trade finance company will either offer you a period of time to repay the amount borrowed, or will use another facility, such as a debtor finance facility to repay the amount borrowed for the stock. The client can choose 30/60/90/120 day terms to repay the debt to the lender at the time of the payment.
So what does trade finance mean?
It refers to various types of facilities that allow businesses to fund their trades.
It is front end financing and can include:
- Paying Suppliers Direct
- Letters of Credit
The financing is bespoke to the individual production, delivery and payment cycle of each trade - it can be for one off deals or on a revolving basis.