Supply chain intermediaries have been expanded in recent years to provide importers with a transaction financed by individual transactions from foreign suppliers to store importers or designated ports of entry customers. The products in the supply chain offer importers a transaction financed on the basis of the customer`s backlog. Trade finance helps businesses obtain financing to facilitate the activity, but it is also an extension of credit in many cases. Trade Finance allows companies to obtain a cash payment on the basis of cash in case of factoring. A credit portfolio can help the importer and exporter participate in a trade transaction and reduce the risk of non-payment or non-receipt of goods. This will improve cash flow, since the buyer`s bank guarantees payment and the importer knows that the product is being shipped. In addition to reducing the risk of non-payment and non-receipt of goods, trade finance has become an important tool for businesses to improve efficiency and increase turnover. Commercial financing is different from traditional financing or credit issuance. General financing is used to manage solvency or liquidity, but commercial financing cannot necessarily indicate a buyer`s lack of resources or liquidity.
Instead, trade finance can be used to protect against the unique inherent risks of international trade, such as currency fluctuations, political instability, non-payment issues or the solvency of one of the parties involved. Although international trade has existed for centuries, trade finance facilitates its progress. The widespread use of trade finance has contributed to the growth of international trade. Commercial financing allows businesses to increase their business and revenue through trade. For example, a U.S. company that may land a sale with a company abroad may not have the ability to produce the goods needed to order. The security of trade finance depends on the establishment of a verifiable and secure monitoring of risks and physical events in the chain between the exporter and the importer. The emergence of new information and communication technologies allows the development of risk reduction models that have become models of pre-financing. This allows for a very low risk of prepayment to the exporter, while maintaining the importer`s normal credit conditions without burdening the importer`s balance sheet. With increased flexibility and volume, demand for these technologies has increased.
In other words, trade finance reduces delays in payments and shipments, allowing both importers and exporters to manage their operations and plan their cash flows more efficiently. Think of trade finance as a use of transportation or trade in goods as a guarantee to finance the growth of the business. Commercial credit is an important source of liquidity for global financial institutions to finance their clients` import and export activities. In the past, terminology, credit structures and support documentation have varied between banks and regions. The standardization and consistency of trade credit documentation helps to improve sectoral dialogue between borrowers, lenders, investors and regulators. The BAFT Trade Finance Documentation Working Group developed the BAFT MTLA, a lending agreement to English and New York bank-masters, with the help of external consultants, to provide clear, concise and consistent language for industry use.