Import-export businesses face many challenges, and reliable trade finance is an excellent method for alleviating some of them. Trade financing involves a trade finance lender to facilitate the sale helping put both sides of the table at ease and facilitating ongoing global business. There are countless risks associated with conducting trade on a worldwide basis, and trade finance is crucial to keeping those wheels turning.
Keeping Pace with Technology
As the world’s technological advances and needs grow, international trade fluctuates accordingly. Many markets emerging in past decades have become mainstays of international trade, and new products are always making waves in the international community. New demands arise, and businesses move to capitalize on them. Over time, shipping companies needs have increased dramatically, and technology has allowed them to get their goods and products to more customers much quickly and efficiently than before.
Without trade finance, many shipments would sit in shipyards and airports until equitable payment agreements are made. Buyers and sellers would face constant gridlock, and international trade wouldn’t be able to keep up with technology and the evolving demands of the global marketplace.
A Middle Ground for Payments
As the needs of export and import companies have grown, payment has remained a constant issue. Buyers want to delay payment as much as possible, and sellers want money for their shipped goods as soon as possible. Trade finance works to reach an agreeable middle ground.
Many trade deals happen because sellers can offer a better set of payment terms to the buyer than their competitors can. Trade finance organizations exist to make this possible. In most cases, the lender will pay for the invoice up front once the exporter ships it. They’ll usually retain a percentage of their fees as a contingency until they receive payment from the buyer.
A Credit Crunch
Short-term trade financing plays a critical role in international business. Eighty percent to 90 percent of all international trade relies on some sort of trade financing, and the supply of available financing lenders has dwindled in the face of the demand. Trade finance is difficult for companies in developing countries to obtain, and the financial crunch of 2008-2009 made it even more challenging. Trade finance is crucial to keeping international trade operations in motion.
While the international economy has made a moderate recovery in recent years, the scarcity of trade financing for developing countries has been a problem. Developing countries play a significant role in the global economy, and their limited access to trade finance slowed global production and shipping.
International trade finance is crucial in today’s global economy and allows both exporters and importers to have a greater degree of confidence when making their trade deals in the global marketplace.