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Trade finance refers to the financial mechanisms and goods that promote international commerce and trade. Trade financing enables and facilitates importers’ and exporters’ participation in international trade. Listed below are some trade financing products and industries:
Banks can provide importers and exporters with lending lines of credit.
Letters of credit lessen the risk involved with international trade because the buyer’s bank guarantees payment for the shipping of goods. However, the purchaser is also safeguarded, as payment can only be issued if the requirements of the LC are met. Both parties must comply with the transaction agreement to proceed.
When companies are factored in, they are compensated based on a portion of their accounts receivable. Exporters can be given access to export working capital or credit.
Insurance can be utilized for the transportation and delivery of goods and to safeguard the exporter against non-payment by the purchaser.