Your business guide to trade finance

Trade finance includes financial instruments such as loans, letters of credit, guarantees and supply chain finance, which can help your business manage the risks and cash flow challenges associated with cross-border transactions.

Finance instruments can help you by providing financing, allowing you to focus on your production expertise Some tools can also provide cover from risks related counterparties, currencies and geopolitical developmentswhich can enable you to scale up and operate in new markets.

A letter of credit is a guarantee from a bank that ensures a seller receives payment from a buyer, provided agreed-upon terms are met. This reduces payment risk for both buyers and sellers, particularly when trading internationally with unfamiliar partners.

When do I need letters of credit?
Consider letters of credit when trading with new overseas partners or when assurance of payment is crucial.

Documentary collections involve a bank handling shipping documents and collecting payment on behalf of the exporter, without providing a payment guarantee. This is a cost-effective way to manage transactions while ensuring some level of payment security.

When do I need documentary collections?
Consider documentary collectionswhen trading with a trusted partner and looking for a lower-cost alternative to letters of credit.

Accounts receivable finance allows you to sell unpaid invoices to a lender in exchange for immediate cash. This improves cash flow by unlocking working capital tied up in outstanding invoices.

When do I need accounts receivable finance?
Consider accounts receivable finance when experiencing cash flow gaps due to slow-paying customers.

Supply chain finance enables buyers to extend payment terms while allowing suppliers to get paid earlier through third-party funding. This strengthens supplier relationships and improves working capital management for both parties.

When do I need supply chain finance?
Consider supply chain finance when working with large buyers and seeking faster access to cash without increasing debt.

Trade loans provide short-term financing to cover the purchase of goods or raw materials before they are sold. They help businesses bridge the gap between buying and selling goods, improving cash flow efficiency.

When do I need trade loans?
Consider trade loans when upfront funding is needed to fulfi customer orders or stock up on inventory.

Export agency finance involves government-backed or multilateral agency-supported loans that help businesses finance export transactions. This offers competitive rates and longer repayment terms, reducing financial risk in international trade.

When do I need export agency finance?
Consider export agency finance when exporting to high-risk markets or undertaking large contracts, requiring long-term financing.

Regardless of your preferred trade finance provider, you will have to:

1. Gain access to cross-border payment capabilities to engage in trade.
2. Prepare business registration documents to prove your legal status, for which a minimum of three years of financial performance is required.
3. Select a finance provider who can provide the products required to achieve your trade finance needs.
4. Open a cash account with the provider; as the relationship builds, get a credit line approved and open an account with the provider.
5. Sign a trade agreement/contract with a supplier/buyer.
6. Consolidate key documentation
7. Complete an application form with all the details of the transaction, and upload all relevant documents for the financier’s due diligence process.
8. Wait for results.

• Invoices: A commercial document issued by a seller to a buyer, detailing goods/services sold, quantities, prices, and payment terms
• Bills of Lading (BLs): A legal document issued by a carrier that serves as evidence of the shipment of goods, their destination and ownership. It serves as the receipt, title document and transport contract.
• Certificates of Origin: A document certifying that the goods being exported were wholly obtained, produced, manufactured or processed in a specific country. how to get you certificate of origin
• Insurance policy: Insurance for the documents being shipped.

• Business track record, experience and industry
• Business financial health, cash flow, credit history, profitability, balance sheet
• Trade transaction details: value, underlying goods, payment terms, correct and valid documentation, counterparty risk, contractual terms
• Collateral and guarantees
• Risk management, country risk, insurance coverage, sanctions screening
• Clarity on loan purpose and usage (a clear statement of usage helps understand why financing needs)

• Submit a detailed and organised application with all required documents
• Demonstrate good relationships with buyers/sellers
• Use trade credit insurance to reduce lender risk
• Highlight growth prospects and potential impact of trade finance on your business
• Leverage technology in business to automate transactions etc. for easier and transparent reporting
• Provide audited financial statements