The import and export industry has seen exponential growth over the last few years, with small and large corporations getting involved. Nonetheless, transactions in this sector have been a bother to many entrepreneurs. Fortunately, that has been overtaken by time, thanks to the trade finance process. Therefore, as a business person, it is advisable to understand what this phenomenon entails by knowing some of its critical facts and how it works.
The Trade Finance Process
This is a pretty straightforward concept where different financial institutions, such as banks and alternative lenders, facilitate and supervise financial transactions between the two parties – the buyer (importer) and the seller (exporter). The involved institutions can finance the transactions locally or internationally, depending on the transaction’s nature and scope.
Trade finance has significantly contributed to the incredible growth, expansion, and success of international trade. Additionally, this funding type has helped create great friendships and relationships between states, countries, and individuals. Some of the activities ranked under this phenomenon include;
Business factoring
Forfaiting
Credit and funding for exports
Lending
Providing letters of credit
Benefits of Trade Finance
Minimized Payment Risks
Exporters want to be sure they will get paid for the products they ship abroad. Importers also need assurance of receiving the products they ordered, especially in cases where they pay before delivery. This funding type has made such payments easier, unlike before when there was no surety. Therefore, there is minimized pressure between the two parties. The importer is sure of receiving the ordered items, and the exporter is not afraid that their clients will default in payments.
Many Available Options
Different trade financiers have several products, giving importers and exporters a long list of options, depending on the transaction’s nature and company needs. Nonetheless, the two major products are:
Bank guarantees where the bank financially represents any party that does not fulfill the contract’s terms and conditions.
Letters of credit where there is an agreement that the importer’s bank will settle the deal with the exporter once the importer receives all the purchase agreement shipping documents.
Importing and exporting different products is lucrative. However, most traders have had challenges, especially when financing a deal. Luckily, WCK Financial is a firm that has helped many business people through trade financing. You should consider contacting the company today for the best assistance.