Trade finance has been around since the year 1983 and has had its effect on the global trade market. The market is constantly evolving to meet the needs of the growing and evolving world and so is trade finance. Therefore, the content of trade finance has changed quite a lot over the years.

If you are new to the global market then the next few lines might provide some guidance and clarification for you. If you have been unknowledgeable so far but have managed to maintain a business going then you might still benefit from learning some more about trade finance and enriching your knowledge.

What exactly is trade finance?

You can find quite a lot of different definitions for trade finance online. What is more interesting is the choice of words. Sometimes, trade finance is described as science and sometimes it is described as an imprecise term which covers quite a big number of different activities. Since the nature of the term is not that clear both of these definitions are right to a certain extent. From a point of view, trade finance is a science because it deals with the managing of the capital which is required in order to make international trade flow. Within this science, however, there are a large number of different tools which are available for all kinds of financiers to use. These tools and their use determine how cash, investments, credit and all the rest of the assets can be used for trade.

For example, when it comes to a certain exporter they require an importer who will pay for the goods which are being shipped. The importer, on their part, wants to reduce the risk for them and asks the exporter to document all the goods which have been shipped. The bank of the importer provides assistance by creating a letter of credit for the exporter. The letter of credit might also be provided for the bank of the exporter and not to himself personally. The payment is made when all the needed documents are provided. One of the most important documents in this example is the bill of lading. The bank of the exporter might give them a loan based on the contract for export.

Trade finance, trade services and supply chain

Building on traditional trade finance requires the help of banks for success. This help is given in exchange for a certain fee. However, an exporter or an importer cannot maintain their business without the proper help of a bank. This is why banks play a very big part in trade finance and supply chains. Finances cannot be managed without the help of a good financial organization and the options provided for importers and exporters and the management of their businesses are numerous if they find the right kind of bank to give them support. This is why a supply chain is maintained through the help of banks that take part in trade finance.

For further information about trade and supply chain finance visit this website.