How do specialised Trade Finance companies differ from Banks?

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:

Collateralized:

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.

Limited:

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.

Recourse-based:

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.

Originally published at https://www.emeriobanque.com.

All You Need To Know About Trade Finance Gap: Find Effects on SMEs

The pandemic has hurt trade and highlighted a requirement to make productive changes in trade finance service to bridge the gap in the number of those who need it and those receiving it. 

Recently, the USD 1.5 trade finance gap was reported by the Asian Development Bank in 2019 during the Covid pandemic. Besides this, the Manila-based multilateral institution’s latest Trade Finance Gaps, Growth, and Jobs Survey, included 79 banks from 43 countries and 469 firms from 72 nations. Its findings reveal the extent to which this trade finance gap is disrupting the full utilization of trade to facilitate growth, employment, and poverty reduction during the sudden outbreak of the global pandemic. 

All this data efficiently demonstrates the lack of accessibility of global trade finance instruments and the disproportionate impact of a lack of funds on emerging markets businesses, especially SMEs (small- and medium-sized enterprises). However, what trade finance gap exactly, why does it matter, and how can it be decreased or controlled?

What is the Trade Finance Gap?

The trade finance gap is the difference between the trade finance requests made by businesses around the world to empower sales of their goods & services and the actual amount of financial assistance that banks are willing to grant or able to provide. In other words, it is the difference between the supply & demand of trade finance services.

Read more: https://www.emeriobanque.com/blogs/trade-finance-gap-and-its-effects-on-smes

Usance Letter Of Credit - Definition And How Does It Differ From Sight Letter Of Credit?

What is a Usance Letter Of Credit?

A Usance Letter Of Credit is a particular type of letter of credit where the buyer gets a predetermined credit period ie. These Usance letters of credit are payable within a predetermined time only after the presentation of the confirming documents. These are also known as Time LC or Deferred Payment LC.

How Is The Usance Letter Of Credit Different?

As we know that letters of credit are one of the most effective trade finance instruments used to facilitate international trade transactions by reducing the payment risks associated with global trade for both the buyers and sellers. However, there are many types of Letter of credit each of which has a different purpose for either importer or exporter and Usance LC is one of them.

The prominent feature that makes a usance or deferred letter of credit different from other types of LCs is its deferred payment option to the buyer. In other words, the period of the payment is pre-decided by the buyer and seller. The easiest way to understand a usance LC is to compare it with a sight LC. Keep reading to know.

Proven Ways To Reduce Payment Risk In Foreign Trade

Being an international businessman, you cannot deny the possibility of finding yourself at the higher-level of risks while initiating a transaction with an unfamiliar importer or exporter in the overseas market compared to domestic markets. Different laws, customs, ethics, transportation, credit, currency, and many more, trading in international business is always synonymous with handling these overseas risks.