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Updated in [July 27th, 2023]
Trade Finance is an umbrella term encompassing many types of debt finance, including invoice finance, factoring, letters of credit, forfaiting, export credit, open account, cash advance, documentary collections, guarantees and structured finance. It is estimated that around 80-90% of global trade is reliant on trade and supply chain finance, which is estimated to be worth around $10 trillion US dollars a year. Trade finance is relevant where a seller requires a buyer to prepay for goods shipped. It is often used in traditional long-standing relationships, where there is a lot of trust between the seller and the buyer, or in most trading relationships.
A trade finance transaction will require a seller of goods and services as well as a buyer. A lender would come in and fund this trade. The buyer’s bank assists by providing a letter of credit to the seller (or the seller’s bank) providing for payment upon presentation of certain documents, such as a bill of lading. The type of document used in the process depends on the nature of the transaction and how evidence of performance can be shown.
Trade finance is the type of finance used by buyers and sellers to assist with the trade cycle funding gap. It can be used for both domestic and international trade. Trade Finance Global helps companies find debt funding, offering impartial, flexible solutions and working with most funders on the market to ensure SMEs get the most appropriate source of funding to help them grow.
