Trade finance

Trade Finance – Smoothen Every Domestic and International Trade

Trading between two parties is at the very heart of commerce. While it can take multiple forms like products and services, it’s safe to say that the world as we know it would stop existing if this trading were to cease. Domestic and international trade has evolved slowly but surely over the course of many centuries. Trade finance, along with insurance, is perhaps one of the strongest contributors to the its present state.

Trades don’t complete themselves. It takes a mountain of effort from multiple sources for a trade to go through. The biggest roadblock, especially when we consider a trade between two parties located thousands of miles away from each other, is the trust deficit. Trade finance and other associated tools help reduce this deficit to a great degree, if not eliminate it altogether. This exponentially enhances the ease of trade, allowing all the parties involved to secure profits in the process. If you routinely enter into such trades, whether domestically or internationally, our trade finance solutions are guaranteed to offer your business a readily-available funding source.

What is Trade Finance?

Trade finance, although a niche variety in itself, is best seen as a business loan. Aimed specifically at easing the trade between two parties, trade finance sorts a number of issues at once. The idea of trade financing, in use for several centuries, has refined itself into the present form. Today, a significant percentage – as high as 80 to 90% – of international trade activities relies on trade finance products, according to the World Trade Organization.
A practical example can explain the underlying concept better.

Example:

Let’s consider the example of a newly-founded cosmetics import business based in the UK. As a part of introducing new products to their customers, the business has decided in favour of importing a sizeable shipment of a private label hair product from a Chinese exporter. The said shipment is expected to cost the business £71,000, inclusive of import duties. Whilst the business can easily settle these dues from their trade accounts, they choose to look for a trade finance provider in order to secure the import, in case the exporter fails to come good on the delivery.

The lender produces a letter of credit for the full value in favour of the exporter, payable at par at any local Chinese bank. The exporter, feeling confident that the payment will now go through, ships the product. Once the importer has received the product and it stands up to their quality checks, they provide the green signal to release the payment. At a negligible cost of interest and processing fees, the trade goes through without a problem.

Why Do Businesses Need Trade Finance?

In addition to addressing the trust deficit, trade finance offers many features to trading partners.

Time

Typically speaking, an international trade can take anywhere between 7 days to 90 days to settle. The more expensive the shipment is, the longer it usually takes for all the processes to conclude. This means that both the importer and the exporter end up bearing the time value of their money. Trade finance solves this problem by speeding up the entire settlement process.

Robustness

Trade finance packages account for some of the most robust business loans. To seamlessly handle currency exchanges or to ensure that the borrower gets enough time for repayment, such loans can be fine-tuned exactly as per requirements.

Risk Mitigation

Trading with a foreign party is inherently risky. Despite a history of past trades, parties usually tend to deal with every new trade as a standalone experience. So, to mitigate the risks that come with entering into such trades, trade finance can be an ideal financing tool.

Our Trade Finance Brokerage Services

Commercial Finance Network holds peerless experience in brokering trade finance packages for UK businesses of all sizes. Two of the most prominent trade finance products we specialise in are detailed below.

Letters of Credit

In the post-2008 financial era, traders – both domestic and international – have started adopting extra caution. From withholding shipments until the payments are cleared to rejecting shipments on the basis of unjust quality parameters, many bitter incidents have exacerbated the situation. Letters of credit come as a definitive solution to these issues.

A letter of credit is a guarantee from the lender, on behalf of the importer, to the supplier that the goods will be definitively paid for. Letters of credit exponentially build and boost the confidence between the trading parties, while also making sure that the borrower (the importer) can easily secure their end of the trade at no significant cost. The letters of credit we help broker are payable in all major trade partner countries.

Import-Export Finance

It’s best to regard import-export finance as a ‘bridging loan’. The window between receiving goods from a supplier and selling them to your customers to earn profits can stretch between days to months, depending largely upon the nature of goods. To prevent this cashflow vacuum from disrupting your operations, import-export finance is an essential financing tool. We help you find specialist lenders who are willing to lend to you at fair interest rates, right in sync with your trading cycle.

Features of Trade Finance Packages We Broker

• Short-term loans
• Low interest rates
• Easy access
• Insurance against trade malpractices
• Lenders experienced in your market