Trade Finance Brokerage

The global trade finance market is expected to grow by over 3% annually between 2025 and 2034. This number means the trade finance industry offers great to all stakeholders. The main task here is to identify the potential of trade finance products and benefit from it.

What Is Trade Finance?

Trade finance is the general term for available financial instruments, including cash, credit, investments, financing and other assets that can be used to facilitate trade.

Trade finance definition refers to the financing of goods (and logistics) between different counterparties. The main trade finance meaning and purpose is to mitigate the risk of payment delays or defaults while maintaining company liquidity.

A typical example of trade finance is supplier credit, where the supplier gives the buyer a defined period (30, 90 or 180 days) to pay the invoice. Another common financing mechanism is the letter of credit, where the buyer’s bank guarantees payment once the seller has delivered the agreed goods and provided the documents evidencing the delivery.

Trade finance can be offered in many different forms, including factoring, forfeiting, as well as other types of loans and financing solutions specifically tailored to the company’s needs.

How Does Trade Finance Work

Banks can provide guarantees to cover the risk of default; they provide credit facilities to finance the exporters. International trade finance allows importers and exporters to focus on the business rather than on the terms of payment. Overdrafts, letters of credit, factoring, and other contracts are available to facilitate international trade transactions.

These trade finance instruments also include payment for freight (logistics). The use of trade finance globally has contributed to the growth of international trade in recent decades. Financial instruments help finance trade and make it more likely that decisions about deals are rational and wise. This leads to stronger international alliances between countries. It includes a variety of services and products that help make global trade more efficient, accurate, and cost-effective.

Three Common Forms of Trade Finance

Many trade finance products cover various supply chain needs, but three of the most commonly used forms are:

• Letters of Credit (LC): Letters of credit are widely used in global trade because they guarantee the seller that they will be paid when the terms of the trade contract are met. The buyer’s bank issues this document to ensure that payment is released once the seller ships the goods and provides the required documents. This protects the seller against non-payment and ensures that the buyer does not pay until the terms are met.
• Bank Guarantees (BG): A bank guarantee is a financial promise from a bank to cover a payment if the buyer fails to meet their payment obligations. This is not a direct payment, but rather a security measure that assures the seller that they will be paid regardless of the buyer’s financial situation.
• Trade Credit: Trade credit is an agreement between a buyer and a seller that allows the buyer to defer payment for goods until they are resold or due after a set period. This form of credit helps buyers manage their cash flow as they do not have to pay for the goods immediately upon receipt. Trade credit is widely used in both domestic and international trade and often comes with a set credit limit and a repayment schedule.

Other Types of Trade Finance Products

Except for the aforementioned types of trade finance, there are the following:

Prepayment in Advance

Prepayment in advance is a type of pre-export international trade finance. It is an advance payment or even full payment from the buyer before the goods or services are delivered.

In this case, the seller receives the funds upfront and is protected from future changes in market conditions. As an advantage, the seller has access to capital since the customer already paid. It can be compared to a down payment, but it differs in several ways. The agreement covers the goods and services that have not yet been delivered. The buyer pays in advance for goods or services; the supplier bears all the risks and costs of delivering those goods or services.

Working Capital Loans

Working capital loans (or business loans) are used to finance the upfront costs of running a business. Business loans can cover anything from the cost of raw materials to labor costs. Businesses get these loans from banks to have the opportunity to grow and expand their operations.

The banks provide them with short-term financing and the businesses can afford to buy inventory and other expenses associated with running a business.

Trade finance loans can be used to finance a large portion of a business’s working capital when used to finance the upfront costs of running a business. They can cover anything from the cost of raw materials to labor costs. They often come with longer repayment periods than other forms of financing but do not require collateral.

Overdrafts

An overdraft is an easy-to-use trade finance facility that is often already available on business accounts. It allows a business to “overdraw” a certain amount. If you have an overdraft trade finance facility set up in your bank account, you can use it.

Factoring

Factoring is a form of post-export finance based on accounts receivable. Many suppliers cannot wait more than 3 months to be paid for their products – they need to pay their invoices now. This is why other types of green trade finance offer shorter financing terms and lower interest rates than factoring.

Forfaiting

Forfaiting is another trade finance tool based on accounts receivable. It differs from factoring in two important ways:

• Forfaiting usually offers better interest rates than factoring. The reason for this is that it is riskier for a bank to provide this type of finance.
• Forfaiting depends on the performance of a single customer (the exporter). Factoring, on the other hand, spreads the risk across multiple customers by selling their accounts receivable to a pool of accounts receivable known as a “factor”.

The deals where financing makes sense are those where an exporter needs short-term financing (less than 12 months). It does not make sense if a company has access to funds from other sources, such as trade finance loans or revolving credit lines.

How Trade Financing Reduces Risk

Trade finance is an essential tool for companies engaged in international trade. It offers solutions that mititgate the risks of cross-border transactions while providing secure and flexible financing options. The World Trade Organization (WTO) estimates that the trade finance process plays a major role in supporting approximately 80 to 90 percent of global trade. This means that trade finance is not just a helpful tool — it forms the backbone of global trade by enabling companies to enter international markets, secure transactions, and support growth with confidence.

Contracts offer opportunities but also entail risks. Some companies are often hesitant to export due to potential risks such as non-payment or late payment from international buyers. Trade finance solutions directly address these concerns by offering financial products that ensure timely payment, improve cash flow, and mitigate risks.

Do you want security in your business from a strong partner? In a commercial transaction, a reliable company offering trade finance services will ensure that performance and payment are carried out by the contract. With its trade finance guarantee, your business activity is secured by professional assistants. This will protect your business and help you remain competitive.

Benefits of Trade Finance

Well-established trade finance process flow helps companies manage cash flow, reduce risks, and make international transactions smoother. What benefits you get when using trade finance services:

• ​​Efficient and structured processing: Regardless of which financial instrument you want to use, you benefit from efficient and structured processing of your business.
• Risk mitigation: You reduce political and economic risks and secure your goods transaction or the performance of a service.
• Security: You receive the necessary security in the processing of goods and payments, thus protecting against loss of earnings.
• Higher liquidity: With letters of credit and bank guarantees, you may benefit from higher availability of your liquidity, as you only have to pay for your goods when they are delivered, when conditions of the letter of credit are met and when they are due.
• Individual advice: The individual advice tailored to your needs ensures that you can use the appropriate instrument for your activities. Our specialists can provide you with the support you require with their many years of in-depth specialist knowledge.

Types of Trade Finance Lenders

Trade finance lenders provide the funding businesses need to support international trade. Here are the main types of trade finance lending providers and what they offer:

Banks
Banks are the most common providers of trade finance. They offer services like letters of credit, trade finance guarantees, and trade finance loans.

Trade Finance Companies
These specialized firms provide faster and more flexible options than banks, such as invoice financing, factoring, or supply chain finance.

Export Credit Agencies (ECAs)
ECAs are government-supported organizations that help exporters by offering trade finance loans, trade finance insurance, or guarantees.

Alternative Lenders
Alternative lenders, like fintech companies or online platforms, often work with smaller businesses and provide quick, technology-based services.

Private Equity and Investment Funds
Some private equity firms or investment funds offer trade finance for large or complex deals. They usually offer trade finance services for businesses operating in high-risk markets.

Obtaining Trade Finance

When a company trades goods or provides services and gives a payment term, this can be financed using a variety of financial instruments that are grouped under the umbrella term “trade finance”. Here’s how to get started to use different trade finance instruments in your financing trade flows:

1. Decide what kind of trade finance works best for your business: letter of credit, invoice financing, supply chain finance, or another option.
2. Look for trade finance providers like banks, companies offering trade finance services, or online platforms. Choose the best fit according to your business needs and providers’ terms.
3. Prepare the necessary documents:
   • Sales contracts or purchase orders
   • Financial statements
   • Business registration details
   • Trade history

Make sure everything is complete and accurate to avoid delays.

4. Submit your application to your chosen lender. Be ready to share details about the trade deal, like the value, payment terms, and the parties involved.
5. If your application is approved, review the terms and conditions. Make sure you understand the fees, repayment schedule, and other requirements.
6. Once everything is agreed upon, use the financing to complete your transaction. For example, a letter of credit ensures the seller gets paid after delivering goods, while invoice financing gives you early access to funds.

Pay back the trade finance loan or financing as per the agreed terms. This will build trust with the lender and keeps the door open for future financing.