Introduction

Trade Finance mainly involves import and export of goods and services. Buyer is the importer and Seller is the exporter in International Trade Finance. Business between importers and exporters from different countries can be very complicated and risky. Understanding Trade finance can help to bridge the problems faced in world business.

Trade Finance enables emerging businesses to gain access to financial resources and provides companies with necessary capital and liquidity allowing them to expand and grow.

Depending on the negotiating power and stage of trade relationship of the parties involved, the trade transaction is designed.

1.If the exporter has high bargaining power then he would demand an advance payment

2.If the importer has high bargaining power then he would prefer payment after delivery of goods

3.If the importer and exporter are not known to each other and enter into a trade transaction, then the best possible trade tool is Letter of Credit.

4.If the importer and exporter are well known to each other and they trade regularly, the exporter could send bills on collection through his bankers to importer’s bankers. However, even under this situation a Letter of Credit would be an ideal trade tool.