Trade Finance is a financing product provided by financial institutions that allows businesses and corporations to access working capital needs for domestic and international trade transactions when they export, import and domestic trade. In particular it can provide short term finance, financing in specific currencies, payments options aligned to the trading cycle, maximize cash flow while you growing overseas supplier and customer bases. It can also be an alternative to an overdraft facility or unsecured loan.
An example includes a financial institution such as a bank may provide a trade finance desk which can adviseon cross border import and/or export trade transactions for liquidity,working capital,payment risk management,transaction processingas well as funding your pre and post shipment requirements.
An example for import trade finance:
You order goods from a supplier locally or overseas. You receive the supplier's invoice and send to the bank . The bank provides financing and working capital to pay the supplier's invoice. The company receives the goods sell them .You pay the bank the invoice amount as agreed to the payment terms which may be agreed within your trade cycle.
An example for Export Trade Finance:
The company receives an order from a customer locally or internationally.The bank provides the company with financing and work capital to manufacture the order. Goods are shipped to the customer from the company. The customer pays the company for the order. The company repays the bank for financing