Trade Finance Company
Every growing business needs a robust financial foundation to operate smoothly. However, a lack of readily available working capital can often hinder operational efficiency. This is particularly true when trading domestically or across borders, where numerous financial elements come into play from initial procurement to final payment. This is where a trade finance company proves invaluable.
Trade finance companies support businesses engaged in both local and international commerce by offering crucial funding to overcome financial hurdles and navigate the complexities of trade. Moreover, they provide trade finance solutions for businesses that effectively manage the inherent risks associated with cross-border transactions.
Understanding Trade Finance
Trade finance provides the necessary financial backing to manage cash flow in both domestic and international trade activities. Furthermore, it acts as a vital tool for minimizing risks, especially in cross-border deals where buyers and sellers may lack prior familiarity, leading to uncertainties about payment and fulfilment.
Therefore, questions naturally arise: Will the buyer pay on time? Can we be sure of receiving the agreed-upon funds? Fortunately, trade finance services offer a resolution to these concerns, providing essential support for more secure and efficient transactions. In a typical trade scenario, there are two key parties involved:
(1) The exporter, who requires payment for their goods or services.
(2) The importer, who wants assurance that their payment aligns with the quality and quantity of the received goods or services.
Benefits from Trade Financing:
- Trade Finance helps in reducing the risk while dealing in the domestic as well as international markets. Being unaware of each other, both buyer and seller need a surety for a transaction with each other, which is solved by financial instruments used in Trade Finance.
- By choosing Trade Finance, the crunch of working capital will be resolved, which will increase the cash flow of the business. So, its main characteristic is working capital management which generates revenue and earnings for the business.
- The relationship between the buyer and seller is strengthened due to the availability of financial instruments like Bank Guarantees, LC Discounting, Factoring, etc. The financial instruments gain confidence between parties and build a relationship due to the guarantee given by a bank or a Financial Institution.
Trade Financing Process
- Borrower agrees to purchase the goods from a supplier.
- And he agrees to terms with the funder and the funder pays the agreed amount to the supplier.
- The supplier then ships the goods to the borrower.
- After receiving goods from the supplier, the borrower sold the goods to the buyer and receives payment for the goods.
- The borrower then repays the money back to the funder.
Understand the Process of Trade Financing Provider from the Case Study.
Parties involved:
1. Borrower/Seller:
A borrower is a person who is in the trading business and needs funds for trading activities.
2. Buyer:
The buyer will buy goods from a borrower/seller.
3. Funder:
Due to the lack of funds, the borrower seeks finances for trade from the funder/lending institution.
4. Supplier/Manufacturer:
The supplier is the person who supplies goods to the borrower who then sells goods to the customers.
Trade Financing Instruments
1. Factoring Finance
Factoring is available to domestic as well as international customers. It is the financial instrument or debtor finance in which the seller sells its accounts receivable to a third party called ‘factor’ at a discount. There are three parties involved in such a transaction: a seller, a buyer, and a factoring company. In simple words, it is selling unpaid invoices for the requirement of instant cash.
2. Letter of Credit (LC)
A line of credit / Letter of Credit is a guarantee that a financial institution provides to pay sellers on behalf of buyers in case of default on their part. Letter of Credit discounting serves as financial security for businesses involved in either export or import or both.
3. Bank Guarantee
Bank Guarantee is a type of financial instrument that banks or Financial Institutions offer. It ensures the liabilities of the debtor will meet i.e., the bank will be held responsible for the non-payment of the debtor. Generally, it is a bank’s promise to a third person. So as to undertake the payment risk on behalf of its customers. The banker charges interest or fees on such an instrument which is based on the risk involved in the transaction.
Terkar Capital: Leading Trade Finance Company
Terkar Capital, a leading trade finance company, simplifies the complexities of trade finance for businesses operating domestically and internationally. Headquartered in Pune, with a corporate office in Mumbai BKC, we offer our financial services across major Indian cities. Our range of debt and equity funding options is tailored to the specific financial needs of each business, ensuring a dependable and efficient financial solution.
I’m International Trade finance consultant based in Delhi with 30+ years experience. I’m dealing with importers, exporters, traders &manufacturers. I can refer you proposals of my clients requiring various trade finance facilities. Please confirm and whatsapp procedure. 🙏
G. M. Rai Consultant International Trade and Finance
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