How do specialised Trade Finance companies differ from Banks?

Apr 18, 2023 - 06:59 AMAuthor - Emerio Banque


Exporters are increasingly running into cash flow issues as payment cycles lengthen and more importers seek credit terms on payment. If your funds are held up, you won't be able to pay your vendors on time or stock up on materials for future orders. This could stifle expansion and potential, ultimately detrimental to your export business's success.

Exporters often use bank loans to bridge this funding gap. However, bank lines are unsuitable for Trade Finance Service due to the following reasons:


When you apply for a loan from a bank, they will want you to provide tangible collateral, such as a piece of property or some machinery. You won't be able to have access to bank lines if you don't have any collateral to put up.


There is a direct correlation between the value of your fixed assets and the quantity of financing you may get from a bank. However, companies often have sales that are much beyond their fixed assets and need more capital to export their surplus through traditional banking channels. In addition, you'll need access to your locked-up working capital during peak seasons when you may be experiencing additional demand, but banks will only extend your facility.


Banks will still look to you, the exporter, for payment if your importer defaults or declares bankruptcy. You would have to make payments directly from your capital, or the banks could seize your possessions. Exporters are exposed to a significant amount of risk as a result, as the default of a single importer might completely wipe out their profits for the year.

Steady but Pricey:

Paper-based procedures and hidden fees, such as processing and document handling costs, are typical in financial institutions like banks. Consequently, they wind up being more expensive than was initially anticipated, and they need to deliver a service that is open and honest and gives customers a pleasant experience. As a result of the nature of the export sector, in which things occur rapidly, exporters demand a swift and effective service.

The Basics of Credit:

When a customer eats at a restaurant and pays for their meal before they depart, the restaurant has very little financial risk. Since the items and the payment are exchanged simultaneously, this type of transaction is called a "cash" transaction.

In international trade, risks arise whenever there is a lag between the sale of a product (or the provision of a service) and the receipt of the corresponding payment; generally speaking, the longer the lag, the larger the risk. Credit phrases are used in these types of dealings. 

A Definition of International Trade Financing

Although importers and exporters benefit greatly from international trade, they are also exposed to some hazards. Importers often need help paying for goods they need to order from abroad. One of the biggest dangers for exporters is getting paid on time by purchasers across international borders. Everyone who participates in international trade is exposed to certain dangers; nevertheless, these dangers can be reduced with the assistance of the International Trade Finance Service.

Who Benefits from Foreign Exchange Financing?

Those involved in importing, exporting, trading, producing, manufacturing, etc., use international trade financing.

Who Offers Trade Financing?

Besides banks, many other financial institutions now provide corporations with reliable export and import financing options.

Businesses Dealing with Money

Bank Guarantee and other financial institutions cater to business clients by administering various financial instruments. Advance funds are available from licensed financial institutions for companies needing cash for continuing business transactions.

Financial Market Middlemen

Multiple financial intermediaries, including agents and third-party service providers, work alongside financial institutions to facilitate international trade.
1. It comprises insurance agents who can help you locate reliable insurers.
2. Commercial Banks in the Classical Model
3. Financial institutions of all sizes, both locally and internationally based, provide international Trade Finance Service, to companies all over the globe.

What makes International Trade Finance unique among other forms of financing?

1. Certain essential distinctions between domestic financing and Letter of Credit, issuance is absent in international trade financing.
2. Unlike public financing, which manages solvency or liquidity, international trade financing may only sometimes indicate that a buyer is short of cash or liquidity.
3. Instead, global trade finance can mitigate risks associated with exports and imports, such as fluctuations in exchange rates, political instability, a trading partner's lack of financial stability, and payment defaults.
4. Many trading intermediaries, such as banks and other financial institutions, are involved in trade finance to enable the many financial transactions between importers and exporters.
5. They go between the buyer and seller as intermediaries, mitigating both parties' exposure to payment and supply risks.
6. The exporter will be given the receivables or payment, and the importer may extend credit to finalise the business transaction.
7. Trade finance encompasses various financial transactions, including letters of credit, export credit, lending, forfeiting, factoring, etc.


Companies can begin expanding their global operations because International Trade finance helps them reduce the risk of financial non-payment from foreign buyers. When sales to foreign purchasers on credit do not disrupt or impede working cash, expanding worldwide operations is a breeze.


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