Trade finance plays a very important role in importing and exporting a range of products that involves transactions between small business, multinational corporations and other such organisations. As a result, the activity covers different types that include export credit, forfeiting, factoring, financing and so on. Apart from the buyer and the seller, trade finance transitions bring in a trade financier, insurers and export credit agencies. Due to that, the transactions that are carried forward are critical to the overall outcome expected by both sides. In the same manner, there are other facts on the table that need to be realised before anyone takes a step forward on this front. Hence, go ahead and read them out.
1. Reduces Pressure on Exporters and Importers
2. The Aspect of Forfaiting
Forfaiting is a form of an agreement where exporters sell all their account receivables to a forfaiter at a specific discount in exchange for cash. As a result, the exporter transfers all his debt to the importer and to the forfaiter. Considering the fact that the importer takes all the goods on credit and pays the forfaiter only after selling them, the receivables bought by the forfaiter need to be guaranteed by the importer’s bank. Due to that, forfaiting has changed things for the better.
3. Reduces Risk
Trade finance has managed to eliminate the factor of risk as importers and exporters are more confident than ever. They are assured about payments, as financial institutions and other such organisations are involved. The kind of assurance that either party receives is well on schedule to help them move ahead and complete the transaction. Payments are processed accurately, and if anyone backs out through the wrong means, then that particular side will have to face the consequences.
4. Trade Finance Products and Services
A lot of companies have entered the picture, and thus, transactions have also changed. Due to that, financial institutions are here to offer various products and services like Bank Guarantee and Letter of Credit. Both these instruments have been critical factors in manoeuvring trade and helping it to move ahead in the right manner. As a result, the number of organisations looking toward trade as an option has only increased.