smallbusiness.co.uk: Helping your business think big

Short-term finance

Rory Earley, CEO of Capital for Enterprise, explores the options...
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Q: What is trade finance?

Oct 23 2007

Answered by: Mark Endersby Ask a question

Trade finance facilitates trade and aims to remove uncertainties for customers and suppliers alike. It is sometimes known as transactional finance and provides funding for companies to pay suppliers for the purchase of goods, normally against firm customer order or where there is a proven demand for the product.

By using letters of credit, suppliers know that they will get paid if they supply the agreed goods in the agreed quantities to the agreed destination. The transaction can be set up against what they call INCO terms.

Customers know that they will only have to pay for goods once they are delivered. Typically these facilities are administered by banks.

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