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Trade Finance and its benefit to businesses
For businesses engaged in international trade, trade finance solutions are integral to success within the global marketplace. By reducing risk, improving business working capital and providing greater oversight of funds and documentation, trade finance increase control over the import and export process to facilitate efficient trade flows. Documentary collections, documentary credits, letters of guarantee, supply chain finance and trade loans are valuable trade finance solutions, which help reduce non-payment risk (for both importer and exporter), provide access to financing, and give increased visibility of transactions. The flexibility of trade finance solutions means they can meet the needs of individual trading cycles and deliver seamless global trade transactions.
Challenges faced during a trade transaction
Managing trade transactions can be challenging, especially when trading internationally, with potential hurdles arising from the outset for both exporters and importers. Owning the risk of non-payment creates uncertainty around transaction settlement and can strain trade relations. This lack of security can leave a business less able to effectively manage costs and maintain visibility over trade transactions. Likewise, if not properly managed, time lags in supply chains can weaken cashflow and leave a business less able to effectively negotiate competitive trade terms. Furthermore, managing documentary and payment collections independently can be a drain on time and resources, as well as being a daunting task for those embarking on international trade for the first time.
Trade Financing Solutions
Import and export trade finance solutions are essential in helping businesses in negotiating the complexities of global trade and ensuring the success of their trading cycle by mitigating risk. Documentary credits provide payment security, facilitating secure trade. Likewise, documentary collections allow a financial institution to manage document and payment collections on behalf of a business, freeing their capacity and providing increased security. Trade loans and supply chain finance also facilitate better balance sheet management by bridging gaps in business working capital cycles, whilst Guarantees provide assurance of a business’ ability to meet a contractual agreement allowing the negotiation of better trade terms. Employing the correct trade finance solutions will help a business reduce costs, optimise their working capital and increase trade security to become a stronger global trading partner.
HSBC’s import and export trade finance solutions include:
Export Documentary Credits: HSBC takes on non-payment risk to ensure receipt of payment for exported goods, even in the case of customer non-payment. Documentary Credits provide peace of mind regarding payment and increased confidence when trading globally. To meet different business trade finance needs, HSBC offers Export Documentary Credit Confirmation and Documentary Credit Discounting.
Import Documentary Credits: On presenting the correct documents HSBC will pay suppliers on behalf of a business, ensuring imported goods have been shipped before payment is issued. Different types of Letter of Credit import finance solutions include:
UPAS (Usance Letters of Credit Payable at Sight)
Payment is issued for imported goods at sight of the correct import documentation.
UPAU (Usance Letters of Credit Payable at Use)
Payment is issued for imported goods within an extended credit period once the correct import documentation has been received.
Export Documentary Collections:The appropriate trade documentation will be held pending payment or promised payment at a diarised date. Acting as a trusted third party, HSBC facilitates the effective movement of trade documents. Which gives increased control of goods with assurance they will not be released until receipt of payment.
Import Documentary Collections:Only once a supplier's bank has presented the correct shipping documents will payment be released for imported goods. Documentary Collections provide payment assurances to suppliers as well as confirmation that goods have been shipped as per agreed specifications.
Trade Loans:
Funding is provided to bridge gaps in business working capital and to optimise finances between procurement, production and collection of proceeds from customers. Trade loans are a trade finance solution to manage costs and build a competitive stance in global trade relations. HSBC provides two types of Trade Loans:
3 HSBC Import and Export Trade Loan Solutions:
- Pre-Shipment Seller Loan
To settle costs incurred pre-shipment - Post-Shipment Seller Loan
To fund post-shipment costs - Guarantees and Standby Letters of Credit:
Provides assurance of a business’ ability to meet a contractual agreement, protecting buyers and suppliers from non-performance facilitating negotiation of favourable trade terms. HSBC offers a wide range of guarantees, including: performance, advance payment, tender, warranty, financial guarantees and non-financial guarantees. We also offer Standby Letters of Credit in cases where buyers and suppliers are less comfortable with guarantees.
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