How International Trade Finance Works for Exporters and Importers

admin April 20, 2023 0 Comments

There is great importance to international trade finance, as it helps in facilitating the access of exporters and importers to manufacture and ship products internationally. Therefore, international trade finance is one of the cornerstones that help in the success of international trade in general. In this article, we will explain to you what is meant by international trade finance and its types, as well as how this type of financing helps exporters and importers to enable them to trade all over the world easily.

What is international trade finance?

International trade finance means those financial products and instruments that are granted to companies for the purposes of facilitating international trade.

International trade finance helps the various importers and exporters in facilitating international trade for them.

It is an integrated term that covers the various financial products and instruments used in the financing process.


Why is trade finance required for global trade?


As we mentioned in the introduction, international trade finance is of great importance because it is in great demand in world trade.

Through it, appropriate financing can be made available to exporters and importers to conduct global trade.

Especially since according to the estimates of the World Trade Organization, about 90% of world trade depends on some form of international trade finance, especially for the short-term period.

The international trade finance gap is about 3.4 million US dollars, which covers various forms of financing needed in trade.

Also, in 2018, according to estimates by the International Chamber of Commerce and the Asian Development Bank, that gap was about 1.6 trillion US dollars.


How Import Export Finance can benefit Your Business

Another name for international trade finance is import and export finance, which can greatly benefit your business.

Especially since cash flow and working capital management is one of the most important things for exporters and importers as well as trading companies alike.

This helps them when they produce large quantities of goods, providing dealers with upfront financing that helps them complete deposit payments.

International Trade Finance options provide financing with a term of up to 120 days, and this type of financing effectively helps in the speed of confirmation of new deals.

And it reduces the time between manufacturing and loading of goods.

Types of Import Export Finance used in Global Trade

There are different types of international trade finance or import and export finance, and the type is agreed upon between the exporter and the importer.

Through the use of different banks or financial institutions, the risks of bills or contracts between sellers and buyers can be eliminated through the so-called payment guarantees.

The following is a list that includes the most important types of international trade finance or import and export finance:

  • Overdraft facilities.
  • Invoice discounting.
  • Mid and long term loans.
  • Bank guarantees.
  • Letters of Credit.
  • Export invoice finance.
  • Factoring.

Banks and other financial institutions can provide customized solutions, in order to mitigate the risks of negative currency movements.


How to apply for trade finance


As for the method of applying for global trade finance, there are a large number of international trade finance companies that can help you, such as:

  • Corporate & Commercial Banks.
  • Alternative Finance Providers & Non-Bank Lenders.
  • Development Finance Institutions (DFIs)
  • Export Credit Agencies (ECAs).

There are a set of basic requirements that you will need to meet in order to be able to apply for global trade finance from one of the above.

Those requirements are divided between requirements for your company and other requirements related to the import and export process.

The following points illustrate the most important requirements that the company needs to apply for global trade finance:

  • Legal Company Name.
  • Certificate of Business.
  • Registration Information on any related companies Business.
  • Registration Number.
  • Registered office address.
  • Details of Director.
  • Contact Details.

The following are the most important requirements for import and export operations that you need in order to be able to apply for global trade finance from one of the previous institutions:

  • Financial details.
  • Budgets and forecasts.
  • Overview of the industries that you operate in.
  • Competitor landscape Types of products that you sell.
  • Types of International clients and countries that you do business with.
  • Details of your trading history with International partners.
  • Current Invoices or Purchase Orders.
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