Structured Trade Finance
Structured Trade Finance
Trade Finance represents a special form of working capital financing. It offers tailor-made solutions for international trade on the basis of individual delivery contracts. Assets financed are usually commodities such as oil, steel, coke, metals, chemicals and the like. The financing is adjusted to the individual production, delivery and payment cycle of each single delivery. The tenor of structured trade finance transactions will generally be short term. The financing can be made available either as a one-off deal or on a revolving basis.
Bank provides such types of Trade Finance:
- Pre-export financing;
- Transit financing (financing of transportation of goods);
- Warehouse financing;
- Financing of receivables;
- and a combination thereof.
Pre-export financing is an advance payment to the suppliers before the shipment of goods, using such instruments as letters of credit, Bank guarantees, pre-finance insurance and etc.
Benefits for the Customer:
The customer can obtain short term financing in markets where foreign currency lending is normally difficult or even impossible to get. The transactions are structured to the need of the individual delivery cycle and cash flows.
The customer can obtain short term financing in markets where foreign currency lending is normally difficult or even impossible to get. The transactions are structured to the need of the individual delivery cycle and cash flows.
Transit financing is provided against goods being in transit either to the place of storage or to the final buyer.
Benefits for the Customer:
Customer gets the full financing circle starting from ordering the goods or from the purchase of the goods.
Customer gets the full financing circle starting from ordering the goods or from the purchase of the goods.
Warehouse financing is provided against warehouse receipt, pledge of goods being stored at the independently controlled warehouse.
Benefits for customer:
Customer can release the funds for the stocking period. Due to often whole-chain financing the financing can vary from purchase of goods until final buyer financing.
Customer can release the funds for the stocking period. Due to often whole-chain financing the financing can vary from purchase of goods until final buyer financing.
Receivables financing is provided against assignment of receivables arising from an export contract. It is used in cases when buyer is creditworthy, buyer is credit insured or when payment is secured by a deferred payment letter of credit.
Benefits for the Customer:
The main advantage is immediate liquidity and complete elimination of payment risks for the exporter.
The main advantage is immediate liquidity and complete elimination of payment risks for the exporter.
Main advantages for companies:
- Company can increase goods turnover, execute new transactions;
- The structure of financing is tailor made and flexible;
- Financing varies from purchase of goods until final buyer financing;
- Company can use financing to match expected revenues with expenditures, making cash flow more efficient;
- Company can minimize the risk of transaction.
Instruments used in Trade Finance:
- Letter of Credit (L/C);
- Guarantees;
- Documentary collection;
- Bills of exchange;
Letter of credit (L/C) is the document issued by the bank (bank-issuer) upon the request of the buyer of goods or services. Under such document the bank takes an obligation to pay the amount, provided in the L/C to the seller (L/C beneficiary), when the latter provides the bank with the documents that correspond all the regulations of L/C. L/C can also be used as short-term financing instrument.
Guarantee is the written deal of guarantee or long-term collateral acceptance, under which the bank undertakes the liability to bearer's or other entity's creditor in case if the debtor does not fulfil the whole or a part of obligation. Bank guarantee is the secure way to ensure the requirements.
Types include guarantee of the sub-payment -, Payment-, Agreement performance-, Delivery-, Tender Guarantee etc.
Types include guarantee of the sub-payment -, Payment-, Agreement performance-, Delivery-, Tender Guarantee etc.
Documentary collection is the arrangement of the received documents in accordance to the regulations provided by the bearer (exporter), on the purpose to get the payment or the acceptance. Either financial documents (promissory notes, cheques), or commercial documents (invoices, transport documents and other) may be provided to the bank for the collection.
Bill of exchange is the security, which shall be issued in the order set by the Law. The person (either individual or juridical entity), who issues the bill of exchange, unconditionally undertakes to pay either directly or indirectly (oneself or by charging another entity) the particular amount of money to the person indicated in the bill.
For more information please contact:
Enn Leet
Head of Trade Finance Unit
+372 66 88 308
enn.leet(at)unicreditgroup.ee
Updated 715 days ago
