Trade Finance

Trade Finance is the broad set of financial products and services that facilitate international trade by funding transactions and reducing the risks between a buyer and a seller who often do not know each other and operate under different legal systems. It bridges the fundamental tension in cross-border trade: the exporter wants to be paid before shipping, while the importer wants the goods before paying.

Its instruments manage that gap and the risks of non-payment, non-delivery, currency and country risk: letters of credit, documentary collections, bank guarantees and standby letters of credit, trade credit insurance, and financing tools like factoring, forfaiting and supply-chain finance, arranged along the spectrum from cash-in-advance to open account. Provided mainly by banks and specialist financiers, trade finance is what allows the vast majority of world trade to happen by giving both sides enough security and liquidity to transact. Understanding the main methods of payment and financing is essential to structuring international sales and managing their risk and cash flow.