What Is Trade Finance?
Trade Finance is simply just a term which states the nature of business between an importer and an exporter. Its sole purpose is to reduce the risks involved in the trading business. As a part of the trading business, both importer and exporter want to minimize the risk of loss. Therefore, an exporter requests an advance payment for the shipped goods and the importer requests the documents as a proof that the goods have been shipped.
To ensure these requests, the importer's bank or the issuer bank provides a letter of credit to the exporter. This letter assures the exporter that he will be paid once documents of proof like bill of lading have been provided. The exporter's bank or the advisory bank issues a loan to the exporter in compliance to the export contract. Both banks, the issuer bank and the advisory bank deals with the documents only and not the physical goods.
Risks Involved in Trade Finance
As international trading occurs between companies situated overseas, there are various factors posing a risk to the business. Some of the risks are:
- Payment/Goods Risk: This is a factor
that both the parties are concerned about. An exporter always faces a risk
whether he will receive payment on time or not. Similarly, the importer faces a
risk whether the goods will be delivered or not, or if the quality will be as
expected.
- Geographical Risk: This kind of risk
include factors like political risk, exchange rate risk, etc. What if the
trading gets affected due to the political struggles between the two countries?
or due to the lack of legal structures, etc.
- Corporate Risk: It include factors like the credit rating of the company or if there is a history of non-payment.
To compensate these risks, services like trade finance solutions and services or Online Financial Advisory Services need to step in.
Best Online Financial Advisory Services
Looking for the best trade finance solutions and services? We got you. Merchant Credit and Guarantee Corporation Limited (MCG), one of the most reputed online financial advisory services has the best to offer. Visit https://merchantcreditcorp.co/ and get the best-in-class Trade Finance Solutions and Services.
Our team of experts possess vast knowledge in their area of study and is dedicated to guiding you in the best possible way. Also, our 24*7 available team assists you to connect with the experts you need for Trade Finance Solutions and Services.
For more information visit our website: https://merchantcreditcorp.co/
Merchant Credit and Guarantee Corporation Limited (MCG)
Phone: +64 9 5244269
Email: info@merchantcreditcorp.co
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