Trade finance

Trade finance is the financing of goods or services in a trade transaction, at any point from a supplier all the way through to the end buyer.

Managing cash and working capital is critical to the success of any business, and trade finance is a tool that can be used to unlock capital from a company’s existing stock, receivables, or purchase orders.

In turn, trade finance allows businesses to offer more competitive terms to both suppliers and customers, by reducing payment gaps in a business’s trade cycle. 

Put simply, trade finance helps to facilitate the growth of a business and is a powerful driver of economic development. 

The World Trade Organization (WTO) estimates that up to 80% of global trade uses trade finance, and in 2018, the International Chamber of Commerce (ICC) put the value of the global trade finance industry at $10 trillion.

Financial institutions support international trade through a wide range of products that help traders manage their international payments and associated risks, and cater to working capital needs.

Trade finance deals typically involve at least three parties: an importer (buyer), an exporter (seller), and a financier. 

These deals differ from other types of credit products, and should have the following features:

  • An underlying supply of a product or service
  • A purchase and sales contract
  • Shipping and delivery details
  • Other required documentation (e.g. certificates of origin)
  • Insurance cover
  • Terms and instruments of payment

Trade finance is an umbrella term that can refer to a variety of financial instruments used by importers and exporters.

These include:

  • Purchase order (PO) finance
  • Stock or warehouse finance
  • Structured commodity finance
  • Invoice and receivables finance (discounting and factoring)
  • Supply chain finance (also known as payables finance)
  • Letters of credit (LCs)
  • Bonds and bank guarantees

The terms import finance and export finance are also used interchangeably with trade finance.

What are the main benefits of trade finance for companies?

Trade finance helps businesses grow by guaranteeing or providing finance to help them to buy goods and stock, which is often necessary when they don’t know or trust other parties in the supply chain.

Many companies use trade finance because it helps them unlock capital from their stock or receivables, which can then be used to finance future growth and development.

Similarly, using trade finance allows businesses to request higher volumes of stock or place larger orders with suppliers, leading to economies of scale and bulk discounts.

A trade finance facility may allow you to offer more competitive terms to both suppliers and customers, by reducing payment gaps in your trade cycle.

It is therefore beneficial not only for business growth, but also for supply chain relationships.
It also increases the revenue potential of a business, as earlier payments may allow for higher margins.

Managing cashflow and working capital is critical to the success of any business, which require reducing metrics such as days payable outstanding (DPO) or days sale outstanding (DSO).

What are the main benefits of trade finance for companies?

Trade finance helps businesses grow by guaranteeing or providing finance to help them to buy goods and stock, which is often necessary when they don’t know or trust other parties in the supply chain.

Many companies use trade finance because it helps them unlock capital from their stock or receivables, which can then be used to finance future growth and development.

Similarly, using trade finance allows businesses to request higher volumes of stock or place larger orders with suppliers, leading to economies of scale and bulk discounts.

.What are the main benefits of trade finance for companies?

Trade finance helps businesses grow by guaranteeing or providing finance to help them to buy goods and stock, which is often necessary when they don’t know or trust other parties in the supply chain.


Many companies use trade finance because it helps them unlock capital from their stock or receivables, which can then be used to finance future growth and development.

Similarly, using trade finance allows businesses to request higher volumes of stock or place larger orders with suppliers, leading to economies of scale and bulk discounts.

A trade finance facility may allow you to offer more competitive terms to both suppliers and customers, by reducing payment gaps in your trade cycle.

It is therefore beneficial not only for business growth, but also for supply chain relationships.

It also increases the revenue potential of a business, as earlier payments may allow for higher margins.

Managing cashflow and working capital is critical to the success of any business, which require reducing metrics such as days payable outstanding (DPO) or days sale outstanding (DSO).


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Chandan Kumar Yadav
My name is Chandan Kumar Yadav CDCS, CSDG, CITF, PGDIBO,AML-KYC, CCFE, MLIBF, CSF, 6SIGMA a trade finance professional with an experience of 11 years whereas worked with several stages of letter of credit, bank guarantee and on other payments methods of trade transactions such as documentary collection, open accounts, SBLC etc., I have a fair understanding of Trade Based Money Laundering as well, Blogging related to Trade Finance is my passion and I want to share which I know and learn from others, I have worked with Wells Fargo, Yes Bank Limited and Bank of America, India which helped me to gain knowledge, view of Trade Finance and importance of International Trade in world's economy. Trade Finance is thumping product, everyday we are learning something new so in order to keep learning I started this as one of the platform. . Let's Learn Together

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