What businesses are prime candidates for trade finance?
Any company engaged in buying and selling raw material, semifinished or finished goods, both internationally and domestically, can utilize trade finance. For instance, a U.S. company receives a product order from a foreign customer, but it has never done business with this customer before and, therefore, has no proof that the customer will pay or pay on time. In this case, the trade finance arrangement involves getting an Export Letter of Credit or Standby Letter of Credit from the foreign customer’s bank. An Export Letter of Credit is a standardized conditional promise to pay the seller when goods are delivered in compliance with the terms and conditions. A Standby Letter of Credit is more along the lines of a performance guarantee. A business is also a candidate for trade finance if a foreign customer places a large order and the U.S. company does not have the liquidity to produce the products to fulfill that order and get paid. Trade finance involves the lender securing short-term p
