Trade and export finance is a service offered by a bank or financial institution for businesses that engage in international trading. This financing provision typically comes with transactional services, technology to help businesses manage their finance, financial advice, risk management services, and financing solutions.
Since international trade can be an unstable marketplace, it is quite common for businesses to use finance for trading. For importing and exporting businesses, there are significant fluctuations in cash flow and there is little certainty with market conditions and foreign exchange rates. As such, trade finance comes with more flexible terms and amounts when compared to other financing solutions.
Business owners should know though that trade finance is not limited to just financing. Typically, if you want to engage in trading, you will have to use the services of a financing institution. However, the level and type of services you use will be up to you. Banks and financial institutions that offer trade finance services usually offer a range of options and you can choose the products that will meet your business needs. These services can include transactional technologies, research and analytics, trade finance facilities, and advice.
Types Of Trade And Export Finance Solutions
What are the types of trade and export financing solutions businesses can choose from? These are:
• Foreign exchange. These are services that cover transactions, forwards and options that can help protect your business against unfavourable market changes. This option also enables businesses to take advantage of favourable currency movements.
• Import services. Businesses involved in importing can take advantage of documentary letters of credit, documentary collections, and trade finance.
• Export services. Exporting businesses may require documentary collections, letters of credit, collection negotiations, working capital guarantees, and financing solutions. These are advantages that businesses can enjoy both pre- and post-shipping.
• Cash flow services. These banking provisions include the management of foreign currency accounts, the facilitation of foreign currency overdrafts, and telegraphic transfers
• Domestic trade services. This particular type of trade finance can fund domestic suppliers and support trading cycles, usually within the country.
Tips For Choosing The Right Trade And Export Financing Solution For Your Business
To pick the most suitable provision for your business, it is best to look into the available currencies offered first. This is a key factor to consider since in the import and trading business, you will be dealing with various currencies used in different parts of the world.
It would also work to your advantage if you check how often the interest rate will be calculated. Ideally, this should be done daily and you should also see how the interest rates for one bank weigh up against the others.
Lastly, look into the offered financing terms. The financing terms for pre- and post-shipment finance usually differ between lenders. Pre-shipment finance generally has shorter terms as well. It is therefore essential to check the terms available before you apply to see if they will work for your business.
About the Author:
Nick Wilson is a business consultant. He recommends reading more about trade and export finance on this link.