Trade Finance

Trade finance deals with domestic and international trade transactions.

Trade requires seller as well as a buyer. various intermediaries banks/financial institutions can
facilitate these transactions by financing the trade


Seller (Exporter) can request buyer (Importer) to prepay for the goods shipped.
buyer may wish to reduce risk by asking seller to document the goods that have been shipped before prepayment

Exporter will be required to present bill of loading and other certain documents about shipment
importer may provide letter of credit to the exporters bank
Exporter bank may make a loan (by advancing funds) to the exporter on the basis of contract


Products and services

Letter of credit  - promise given by a bank on behalf of buyer to the seller that if seller presents the complying documents to the buyers designated bank as specified by buyer in the purchase agreement then buyers bank will make payment to the seller

Bank guarantee -it is an undertaking or promise given by a bank on behalf of applicant and in favour of beneficiary.

If applicant failed to fulfil the obligations either financial or performance per the agreement between parties then guarantor bank will be responsible for the guarantee amount on behalf of the applicant based on the demand or claim raised by the beneficiary

popular methods of payment

advance payment - buyer arranges for their bank to pay the supplier around 30% of order value upfront when ordering and rest 70% when the goods are released or shipped

letter of credit (L/C) - this document gives the seller that payment will be made by the buyer.

bills for collection  - bill of exchange is used  - documentary collection which is the transaction whereby the exporter entrusts the collection of the payment for a sale to its remitting bank which sends the document that its buyer needs to the importers bank, with instructions to release the documents to the buyer for payment

open account - business partners who trust each other. two parties need to have their accounts with the bank

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