Build your Knowledge on Trade Finance and how it Works Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade. Trade finance is an umbrella term meaning it covers many financial products that banks and companies utilize to make trade transactions feasible. The function of trade finance is to introduce a third party to transactions to remove the payment risk and the supply risk. Trade finance provides the exporter with receivables or payments according to the agreement while the importer might be extended credit to fulfil the trade order.
Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade. Trade finance can help reduce the risk associated with global trade by reconciling the divergent needs of an exporter and importer. Trade finance is a large industry and covers many various sectors whereas the description above only explains traditional trade finance. To go into further detail about trade finance have split up the definition into sectors of trade finance which we strive to cover. Trade finance helps settle the conflicting needs of the exporter and the importer. An exporter needs to mitigate the payment risk from the importer and it would be in their benefit to accelerate the receivables. On the other hand, the importer wants to mitigate the supply risk from the exporter and it would be in their benefit to receive extended credit on their payment. The function of trade finance is to act as a third party to remove the payment risk and the supply risk, whilst providing the exporter with accelerated receivables and the importer with extended credit.