What is Trade Finance?

When You Use It!
Importers who are required to pay in advance or on sight of shipping documents and do not want to burden cash flow and working capital arrangements, can gain access to funds by having suppliers discount Bills of Exchange drawn on them. For importers who are required to pay for purchases in advance of shipment or on sight of shipping documents, but for cash flow and working capital considerations would like the benefit of credit terms.

What Is It?
A mechanism whereby importers benefit from credit terms that allow them time to turn the goods purchased into cash before having to pay. The exporter is also assured of early settlement. The facility may be made available with or without recourse to the exporter.

How It Works!
1. The exporter/supplier submits a bill of exchange (drawn on the importer or buyer) and shipping documents to the bank. The bill would normally be made payable to the bank and reflect a specific tenor of repayment (as agreed between importer and bank).
2. The Bill is presented to the importer for acceptance of payment.
3. On acceptance, the bill is discounted and the exporter paid.

Documents Needed To Access Facility
If an importer requests the facility, up-to-date financial information will have to be provided. Where the supplier or exporter requests the facility and financial information is not available to the bank, recourse to the exporter is retained, and he must furnish financial information on his own company to confirm his ability to settle the Bill if the importer refuses to do so.

Discounting charges are usually borne by the person requesting the facility.

When You Use It!
For medium to large-scale manufacturers who import large quantities of raw materials, Inventory Financing eliminates the up-front costs.

What It Is And How It Works!
Raw materials of a generic, non-perishable nature are a pre-requisite, as are relevant Customs approvals and storage facility.

Suppliers may be paid by Documentary Letters of Credit with the raw materials consigned to the Bank, or via revolving line of credit. The respective drawing will be repaid in accordance with loan arrangements. These are usually linked to manufacturers' production and collection cycles, so that payments are linked to cash flows generated by the raw materials.

When You Use It!
For importers who prefer to purchase plant and equipment from annual business earnings and who have good net cash flows.

What It Is And How It Works!
This form of financing allows importers to confirm payment to foreign suppliers for equipment and machinery and to structure repayment to suit the specific cash flows of their business. It is particularly beneficial to importers who have cyclical experiences in their annual trade patterns and need to match payment obligations to the timing of receipts from sales.

Once capital goods purchases are identified, therefore, the equipment manufacturer is provided with a guarantee of payment if the particular piece of equipment is standard in nature. The Bank would then make payment against shipment and establish a specific facility to be repaid under the prearranged terms.

The use of separate Capital Goods Trade Financing is particularly beneficial in that it avoids the congestion of overdraft facilities with equipment purchases, which is very often the case. This leads to over-limit situations which introduce administrative burdens and unnecessary penalty interest charges.