Trade finance products are specially designed to facilitate trade between two parties whether this trade be domestic or international. Importers and exporters, according to the nature of their trade can buy products and conduct smooth trading as they are risk-free, and they are therefore assured of the successful completion of their trading deals. Here we will look into some of the trade finance products that are provided by trade finance companies.
Letters of credit: this is the most common form of trade finance in which the buyer’s bank provides letters of credit to the seller. These letters mean that they are committed to honoring the full payment of goods that the buyer has ordered from the seller. After dispatching the consignment, the seller, equipped with the bill of loading provided by the courier would present this to the buyer’s bank and then collect the payment. This is a risk-free arrangement because the seller is guaranteed of the payment by the bank and you will not find a better guarantee than that. Buyer’s bank with its own agreement will collect the payment from the buyer according to the terms prescribed in the agreement between them and the client.
Bank Guarantee: This is another regular form of trade finance UK, which is employed commonly to facilitate trade transactions. Here the Bank gives an undertaking to the beneficiary or seller on behalf of the applicant or buyer in which the bank provides a guarantee that the consignment will be paid in full if for any reason the buyer fails to pay for it. The guarantor bank will pay the payment due to the seller upon receiving a claim or demand by him on behalf of the applicant or the buyer. There are several types of bank guarantees offered by trade finance companies and they include a tender bond, performance bond, advance payment, financial, labour and retention.
Collection and discounting: The collection and discounting of bills is a primary trade service tool provided to the traders by banks in the UK. In this arrangement, the seller’s bank will collect the payment from the Buyers bank on behalf of the seller. This is done under an agreement and it is one of the most common trade finance tools used in the country and the world.
Service charges for trade finance tools can vary from bank to bank, however, the private institutions that facilitate the traders with their flexible service would be a better option over the conventional avenues.
