Trade finance is one such finance solution that is gained from an outside party such as a bank or financial institution. This kind of finance allows exporters and importers to conduct their business harmoniously as it offers a guarantee on behalf of both of the parties.
Trust is really important for any business that is dealing with imports and exports, and this trust can be only provided by institutions that have a high amount of credit rating in the lending and borrowing sectors. Banks are empowered to grant trade finances to traders who are involved in importing goods and commodities from outside the country, but there are also other financial institutions that are recognized and authorised as well. Depending on the items that are being imported, the importer can ask for assistance from the financial institutions in order to be able to offer a trustworthy guarantee to the exporter who will then send the required goods to the importer.
As previously stated, mutual trust is the crux of any import or export business, and sometimes an importer might think that the exporter may not send the material he has requested if he sends the payment in advance. Similarly, an exporter may think along the same lines and believe that he will not get his payment in full if he sends the entire consignment in one go. This tug of war can be resolved by the use of financial institutions that offer trade finance to traders. Davenham Trade Finance UK offers a comprehensive financing service to importers and exporters so that they can make transactions on easily affordable terms.
The trade financier can offer both importer and exporter a guarantee through several instruments, and one of these instruments is a bank guarantee via a letter of credit. In this case, the financial institution will send a letter of credit to the exporter on behalf of the importer assuring them that the payment will be made even if the later fails to comply. There are several kinds of trade finances, as previously mentioned, and these also include collection of and discounting of bills.
Trade finance essentially offers both importers and exporters safe transactions, and the traders can choose any of the financial instruments offered when they find themselves short of money or there is a lack of trust. It is up to the traders to find the right institution to help them and the right terms to execute the financial deal. In the UK, there are several institutions, such as Davenham Trade Finance, that offer trade finances to importers at very reasonable rates.