What Types of Trade Finance Options are Available?

There are various trade financing instruments offered by financial institutions to facilitate commerce and mitigate risks. The main options include:

• Letters of Credit (LC): A key instrument used in international trade to ensure payment to the exporter upon meeting certain terms. The issuing financial institution guarantees payment on behalf of the importer.
• Supply Chain Finance: Financial solutions facilitating financing between buyers, sellers, and suppliers in a supply chain network. Eg. reverse factoring
• Export Credit Agencies: Public agencies providing financing, guarantees, and insurance to facilitate exports and cover risks like non-payment
• Factoring: Financing method where the accounts receivables are sold to a factoring company to receive early payment
• Forfaiting: A medium to long-term trade financing option for exporters of capital goods and commodities
• Invoice Discounting: Short term financing where the exporter can draw money against the invoices before the buyer makes the payment
• Insurance: Export credit insurance offered by public and private agencies to cover risks like non-payment by foreign buyers
• Purchase Order Financing: Funding to execute a confirmed purchase order and cover costs of production and procurement
• Trade Credit: Credit extended by the exporter to the importer for a certain period before payment needs to be made
• Cash Advances: Providing cash upfront to exporters to meet costs and secure raw materials before production
• Term Loans: Medium to long-term financing to importers and exporters to cover costs and requirements