Business

What Are the Different Types of Trade Finance?

What Are the Different Types of Trade Finance

If you own an import-export business in Dubai and want to grow as a bigger company, the obvious thing that you need is funds. Funding your business is a continuous process and requires constant focus. Here lies the significance of trade and export finance that is a reliable source of funding that can help you in dealing with and satisfying bulk orders. But before you delve into the dynamics, it is intelligent to know about various categories of trade finance. Remember, keeping the fundamental right is the key to gain success in business. Continue reading to know more on this matter.

Advance Payment

This is a finance category that occurs when talks on pre-export conditions and deal terms are going on. The bank or the funding agency agrees to pay the supplier in advance, in a regulatory framework. This method helps the supplier to a good extent in terms of ensuring cash flow. But from an overall perspective, this can be risky. Although the option is quite popular but there lies a good amount of credit risk or risky situations of non-payment.

Loans as Working Capital

If you need to finance all the upfront expenses of your business, then this method is extremely effective. Whether it is about purchasing raw material, or revamping operational activities, trading financing funds as working capital can help to a considerable extent. These are secured funds. As securities, you can use assets of your company.

Overdrafts

Are you interested in using the current account of your business for trade financing? If yes, then overdraft is the method to do so. There are ‘overdrawn’ facilities to supply you for funds. The prime features that mark this method are simplicity, besides flexibility. But there is a catch. You need to be aware of the exorbitant interest rate that overdrafts usually charge.

Factoring

Factoring is an optimal way to regulate the flow of trade finances in post-export stages by keeping a regulated and technical approach to tune the balance sheet of the business. The invoices of the supplier are procured by the funding institute and take care of. There are receivables of short-term nature related to this type of trade financing. There can be some significant recourse to this method.

Forfaiting

The process of forfaiting in trade finance is about receivables. But it has marked differences from factoring procedure. There is no recourse here. Goods are received on pre-set conditions. Moreover, the risk involved in this case is minimal.

Do you want to know more details about trade financing and its aspects? Simply visit https://www.credicocapital.com/ to gather suitable information that will benefit your business.

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