What is Trade Finance
Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce of various and multiple different commodities. Trade finance makes it possible and easier for importers and exporters to transact business through trade, eventually certain trades could not materialize without the financing attached to it. Trade finance is basically an umbrella term that covers many financial products that banks and companies utilize to make trade transactions feasible.
How Trade Finance Works
The function of trade finance is to introduce a third-party to transactions to remove the payment risk and the supply risk, provide financing directly or indirectly and overall support the structuring of the whole supply chain. Trade finance provides the exporter with receivables or payment according to the agreement while the importer might be extended credit to fulfill the trade order.
What are the Typical Parties in Trade Finance?
The parties involved in trade finance are numerous and can include:
- Banks
- Trade finance companies
- Importers and exporters
- Traders
- Insurers
- Export credit agencies and service providers
How Does Trade Finance Really Work?
When a trade transaction takes place, the buyer and seller incur different types of risk. For the buyer, there is a risk that the goods purchased will not arrive on time or will fall short of the expected quality or volume. The seller, meanwhile, faces the risk that payment will not be received on the agreed terms for the goods provided. These risks are exacerbated in an international trade transaction, as resolving any disputes can be time consuming and difficult – particularly when the markets involved have different cultures and regulatory climates.
To mitigate these risks, there are different ways of structuring trade transactions, including open account, payment in advance, and letters of credit.
What is the Value Add of Alvear Capital in Trade Finance?
Alvear Capital has developed, over more than 50 years of cumulated experience of its management, a strong expertise in commodities trading and trade finance in general. This repents an invaluable source of knowledge that makes possible structuring and origination of certain profitable trades and deals that wouldn’t not have been made possible without the trade finance attached to it.
Financing becomes more than ever a source of competiveness with banks, generally reducing their support to carbon generating activities, but these activities remains essential and necessary to our lives. Alvear Capital will provide you with a unique support that will bring banks, credit insurance, private equity and many other sources of funding supportive to your business and our objectives.
What is the Scope of Services Provided by Alvear Capital?
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. Alvear Capital will help reduce the risk associated with global trade by reconciling the divergent needs of an exporter and importer.
Ideally, an exporter would prefer the importer to pay upfront for an export shipment to avoid the risk that the importer takes the shipment but refuses to pay for the goods.