There are still a few Trade Financiers specialized in providing trade finance products and solutions to international trading houses, both in developed as well as in developing markets around the globe.
Market developments pose constant challenges to traders. Shifts in supply and demand patterns result in changing prices, which in turn affect trading companies’ risk and liquidity positions. The relationship of traders with suppliers and buyers often depends on the ability of traders offering something in return which goes beyond the traditional financing products. Competition and market developments drive innovation, which in turn affects business for traders and hence the banks which service their trade finance requirements. Unfortunately, due to several reasons starting after the Financial Crisis of 2008-2010, the ability of banks to offer stable funding for trading houses has been erode almost year by year. Alternative Funds developed and jumped into the gap which trade banks left by shrinking their supply of credit to the trading community.
Nevertheless, the demand for trade & commodity credit is still strong and the examples given here are still worthwhile to study. Example 1: A trading house having a good relationship with a producer in a developing country might be asked to finance the products before they are ready for transport. By agreeing to this, the trader is practically being asked to provide working capital to the producer of the commodity or product. This kind of financing is known as Pre Export / Pre Payment Financing. A few specialized banks and financiers would be ready to assist in cases like this, as long as the related performance and delivery risk are acceptable. Often, risk sharing schemes are agreed to between the trader and Financier. Once the goods are produced and move in international territories, the financing shifts to the more regular products where title documents are prevalent, and the control of the actual products, becomes much easier. This stage is known as Post Shipment Financing. Banks will provide for the financing of the goods and commodities in transit until they have reached their final destination. One can therefore appreciate the various permutations and the different names used to describe the myriad banking products which can be employed to handle financing requests.
After having secured the Post Shipment Financing, i.e. Warehouse Financing or Trans-shipment Financing, traders would want to sell on the goods traded to other traders or final buyers. Whether these are sold to international clients in emerging or developed markets, specialized financial institutions would still offer the facility to proceed with the financing.
If the ultimate buyer of the products represents an acceptable buyer risk, some banks might decide to accept the receivable or the relative financial instrument resembling the receivable. In any case, they might confirm and discount the import LC (Letter of Credit) which the ultimate buyer has issued in favor of our trading house. Should the risk be related to an emerging market, many institutions with receivable finance skills and know-how will be glad to evaluate the transaction and search for ways to shorten your waiting period to receive the related payments. Should the transaction be done on open account, a factoring business partner of ideally the same financial institution might get involved with a view to shortening your asset conversion cycle by providing you with financing for your invoices.
Whatever your requirements and the specifics of your case, a good trade finance bank will be able to provide and deliver innovative and tailor-made financial solutions which will facilitate your export – import – trading business.
Which banking organization or alternative financial service provider should be your target to get your individual Supply-Chain-Finance done? Eckermann & Partners would be glad to assist in the search for the right institution.