For companies to grow and expand across borders, they must get help with international trade finance. This reduces the exposure to risks and potential hazards that can stand in the way of your business trading with other countries. While businesses can try and manage worldwide growth on their own, global trade finance tools make the expansion process much easier.
Want to find success on a global scale? Continue reading to learn more about international financial trade and discover what financial services you may need to grow your business.
International trade finance is the financial instruments and products used by companies to facilitate international trade and commerce. It allows importers and exporters to transact business across borders through trade more easily.
The reason for financial trade finance is to bring in a third-party financial provider who can remove payment and supply risks from your global operations. Trade finance provides the exporter with receivables or payments based on the agreement made, while the importer might be offered credit to go through with the trade order.
Generally, the involved parties can include banks, trade finance companies, importers and exporters, insurers, and export credit agencies and service providers. Each of these groups will handle a different portion of the international trade process, but all will benefit from the various products and services this tool provides.
There are several types of international trade finance instruments and mechanisms that can help businesses mitigate risks, providing the necessary funds to support their global operations.
The types of global trade finance available to businesses include:
Your bank can use a letter of credit as a guarantee on behalf of the importer to ensure that payments will be made to the exporter right after fulfilling the specified conditions. This allows both parties to have assurance that what’s been promised will be delivered. It also reduces the risk of non-payment or non-delivery.
These short-term loans are provided to organizations to cover any trade financing gaps that may be between the shipment of goods and receipt of payment. As the name suggests, export loans are given to exporters, and import loans to importers.
With this tool, financial services institutions act as intermediaries to collect payments from the importer. The exporter gives all the necessary shipping and payment documents to their bank, which then presents them to the importer’s bank for final payment. This allows all parties to go through organized payment methods and have help with managing processes.
Trade credit insurance protects export professionals from not being paid properly due to buyer defaults, insolvencies and other risks. Even if the importer is, for some reason, unable to pay for their exported goods, this insurance type makes sure that the exporter still gets compensated.
This is a popular banking service for domestic commerce, but it’s also beneficial for international trade. Forfaiting is when exporters sell their accounts receivable to a factoring company for a reduced price, which then manages the collections from the importer.
Working capital is extremely important for exporters and importers alike. Pre-shipment finance pays exporters before goods are shipped to help cover production and operational costs. Post-shipment finance provides funding after the goods are shipped to ensure the professional has working capital until the final payment is made.
This type of international trade financing uses warehouse receipts as collateral to secure loans. These documents represent the ownership of stored goods, enabling exporters to access funds based on the value of the goods being stored.
With the help of international trade finance, businesses can facilitate smooth transactions, reduce risk and boost global competitiveness.
We’ve already talked about the importance of open access to working capital: Exporters often need it to fulfill large orders and maintain productivity. With the option to reach into available funding when they need it, organizations can seize growth opportunities when they arise rather than waiting to have the right amount of capital.
On top of access to cash, organizations can obtain financing to facilitate business by receiving a payment based on accounts receivable in case of factoring. A letter of credit might help a business enter a trade deal and reduce the risk of nonpayment or non-receipt of goods. This all improves cash flow immensely and makes sure everyone gets paid no matter what.
The supply chain can be complex and difficult to manage. With guidance from your bank’s global trade finance tools, you can streamline the flow of documents and payments between exporters, importers and other key stakeholders. This reduces the hassle of difficult international trades and can smooth potential disputes and transaction processes.
Reduce the risk of falling behind on payments or losing key customers by having revolving credit facilities and accounts receivable. This helps companies work internationally and get out of financial difficulties by giving them access to funds when and where they need them.
Ultimately, businesses can increase their revenue and earnings by leveraging their business revenue through international trade. Diversify your funding sources beyond traditional bank loans and avoid difficult economic conditions by being prepared with trade loans.
The world is full of business growth opportunities that companies may miss out on without the right partner. While many institutions provide trade finance, trust Cathay Bank to deliver secure and trustworthy import and export finance services.
Our finance team members know the ins and outs of international business and banking, extending our knowledge to help you navigate complex foreign trades, come up with a risk management strategy and ensure you have the necessary funds to drive your business forward.
Cathay Bank’s experienced trade finance teams help businesses of all sizes grow into international markets and stay competitive. See what our international trade finance services can do for you.
This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.