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Trade finance primarily involves fulfilling confirmed purchase orders by providing the necessary funding to purchase inventory or stock.
This financial tool ensures that businesses can fulfil customer orders quickly by covering the costs of goods, allowing shipments to proceed without waiting for customer payments.
It’s a term that encompasses different financial products and services tailored for international trade, including import and export finance, supply chain finance, and invoice factoring.
Trade finance is like a financial bridge that helps smooth out the bumps in international trade. When a business wants to buy goods from another country but needs money to do it, trade finance steps in.
Here is how it works:
1.
Confirmed Orders
Trade Finance often starts with a confirmed purchase order from a customer, indicating the need for specific goods.
2.
Funding request
3.
Financial Instrument
4.
Goods Procurement
With the financial assistance secured, the business purchases the necessary goods from the supplier.
5.
Shipment and delivery
The goods are shipped to the business or directly to the customer, depending on the terms of the purchase agreement.
6.
Repayment and settlement
Once the goods are delivered and the customer pays, the business uses that income to repay the financing obtained through trade finance, completing the transaction cycle.
Trade finance is primarily designed for businesses engaged in international trade, including importers, exporters, manufacturers, and distributors. It’s built for companies of varying sizes, from small businesses to large enterprises. Essentially, anyone involved in buying, selling, or transporting goods across international markets can benefit from trade finance.
Fast & Flexible
Expertise & Experience
Tailored Solutions
Risk Mitigation
Trade finance tools help mitigate various risks associated with international trade. These tools provide a level of assurance and security for both buyers and sellers involved in the transaction.
By providing financial support and reducing risks, trade finance allows businesses to explore new markets. This encourages growth and expansion.
Trade finance allows businesses to access funds to fulfil orders or purchase inventory without depleting working capital.
Access to trade finance allows businesses to offer more favourable payment terms to buyers, which can attract more customers and enhance their competitiveness in the global market.
The cost of trade finance can vary significantly based on several factors. Some common costs associated with trade finance include:
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