Trade Finance
Trade finance refers to the financial products and instruments that companies use to facilitate international trade and commerce apart from traditional banking options like CC & OD. It involves a range of financial products that aid in the transaction process, mitigating the risks associated with global trade and ensuring that exporters receive payment and importers receive goods.
Key Components of Trade Finance
1. Letters of Credit (LCs):
A letter of credit is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions specified in the LC are met.
Types:
Revocable can be altered or cancelled without the consent of the beneficiary, whereas irrevocable cannot.
Payment is due upon presentation of documents while taking the possession of the material
Payment is due at a later date, providing the importer with a period of credit.
2. Bank Guarantees and Standby Letters of Credit (SBLC):
A promise from a bank to cover a loss if a borrower defaults on a loan.
A guarantee of payment issued by a bank on behalf of a client, used as a last resort if the client fails to fulfill a contractual commitment.
3. Bill Factoring and Forfaiting:
The exporter sells its accounts receivable to a third party (the factor) at a discount, obtaining immediate cash.
The exporter sells its medium to long-term receivables to a forfeiter, a specialized finance company, typically at a discount.
4. Trade Insurance:
Protects the exporter against the risk of non-payment by the importer.
Covers losses arising from political events, such as expropriation, currency inconvertibility, and political violence.
Other Trade Finance Services
1. Trade Credit and Financing:
Buyer requires the credit period and supplier is not in position to provide credit period. In such scenario, we can help you in arranging the Post-shipment bill discounting where supplier can get the immediate funding up to 80% of invoice value
In some cases supplier want the payment immediately. We have facility to provide import finance.
You receive the order and in some cases LC. However, you need funding for procurement of the material due to Post-shipment discounting limit in bank or non-availability of LC discounting facility. We can help you in arranging the Pre-shipment finance
Based on client’s profile, vintage and underlying commodities we may assist for these facilities.
2.POF – Proof of Funds
POF are required by suppliers in case of high value material purchase or to obtain the contracts. To help you in such scenario we can issue the POF on behalf of you to your esteemed clients.
3. Block Funds
Similar to POF block funds also help you in obtaining long term contracts, tenders of material purchase agreements.
4. Bills of Exchange (BOE & IBOE) :
A written order from one party (the drawer) directing another party (the drawee) to pay a specified sum of money to the bearer of the bill on a particular date.
5. Documentary Collections:
A process where the exporter entrusts the collection of payment to its bank, which sends documents to the importer’s bank with instructions to release them to the importer against payment (Documents Against Payment – D/P) or acceptance (Documents Against Acceptance – D/A).
6. Setup of Credit Lines
Establishing credit lines is a vital component for maintaining liquidity and supporting business operations, especially in times of growth or expansion. We assist businesses in setting up credit lines tailored to their specific needs, whether for working capital, trade finance, or large-scale projects.
Our expertise lies in securing flexible and competitive credit arrangements from top-rated banks and financial institutions. We work closely with you to assess your financial situation, determine the optimal credit structure, and negotiate terms that align with your business goals.
By setting up the right credit lines, you can ensure consistent cash flow, enhance your purchasing power, and better manage financial risks, all while positioning your business for sustained growth.
Benefits of Trade Finance :
Reduces the risks associated with international trade, including currency fluctuations, political instability, and non-payment.
Improves liquidity by enabling companies to receive payment for goods promptly and providing credit terms to buyers.
Facilitates smoother transactions and can help companies negotiate better terms with suppliers and customers.
Assists companies in entering new markets by providing financial support and risk mitigation.