Trade Finance represents a special form of working capital financing. It offers tailor-made solutions for international trade on the basis of individual delivery contracts. Assets financed are usually commodities such as oil, steel, coke, metals, chemicals and the like. The financing is adjusted to the individual production, delivery and payment cycle of each single delivery. The tenor of structured trade finance transactions will generally be short term (i.e. up to 12 months). The financing can be made available either as a one-off deal or on a revolving basis. Normally, up to 80% of the contract value is financed.
Bank provides the following types of Trade Finance:
- Pre-export financing;
- Transit financing (financing of transportation of goods);
- Warehouse financing;
- Financing of receivables;
- and a combination thereof.
Pre-export financing is an advance payment to the suppliers before the shipment of goods, using such instruments as letters of credit, Bank guarantees, pre-finance insurance and etc.
Benefits for the Customer:
The customer can obtain short term financing in markets where foreign currency lending is normally difficult or even impossible to get. The transactions are structured to the need of the individual delivery cycle and cash flows.
Transit financing is provided against goods being in transit either to the place of storage or to the final buyer. Financing is subject to presentation of the respective transport document confirming shipment of goods.
Benefits for the Customer:
Customer gets the full financing circle starting from ordering the goods or from the purchase of the goods.
Warehouse financing is provided against warehouse receipt, pledge of goods being stored at the independently controlled warehouse.
Benefits for customer:
Customer can release the funds for the stocking period. Due to often whole-chain financing the financing can vary from purchase of goods until final buyer financing.
Receivables financing is provided against assignment of receivables arising from an export contract. It is used in cases when buyer is creditworthy, buyer is credit insured or when payment is secured by a deferred payment letter of credit.
Benefits for the Customer:
The main advantage is immediate liquidity and complete elimination of payment risks for the exporter.
Main advantages for companies:
- Company can increase goods turnover, execute new transactions;
- The structure of financing is tailor made and flexible;
- Financing varies from purchase of goods until final buyer financing;
- Company can use financing to match expected revenues with expenditures, making cash flow more efficient;
- Company can minimize the risk of transaction.
Main requirements for Trade Finance:
- Company has minimum 2-3 years experience in trading activities;
- Parties involved in trade have long term experience and are reliable;
- Goods have liquid market (goods are traded on commodity exchange) and have common quality standards. For goods not traded in commodity exchange the sales agreements are expected to be presented;
- Company participates 20-30% in the deal with its own funds;
- All documents, required for company's financial analysis, must be presented to the bank.
Collaterals:
- Assignment of all rights under purchase and sale agreements;
- Assignment of all rights under documents of title (Bill of Lading, etc.);
- Pledge of goods and receivables;
- Assignment of insurance;
- Blocked special Trade Finance account;
- Other collaterals, acceptable to the Bank.
Instruments used in Trade Finance:
- Letter of Credit (L/C);
- Guarantees;
- Documentary collection;
- Bills of exchange;
- Trade credit insurance;
- Others tailored products.
Letter of credit (L/C) is the document issued by the bank (bank-issuer) upon the request of the buyer of goods or services. Under such document the bank takes an obligation to pay the amount, provided in the L/C to the seller (L/C beneficiary), when the latter provides the bank with the documents that correspond all the regulations of L/C.
Discounting of Export Letter of Credit - bank pays to the seller (consignee of L/C) before payment by the L/C term. Documents of Export L/C are discounted at particular price (discount), expressed in annual interest rate.
Guarantee is the written deal of guarantee or long-term collateral acceptance, under which the bank undertakes the liability to bearer's or other entity's creditor in case if the debtor does not fulfil the whole or a part of obligation. Bank guarantee is the secure way to ensure the requirements.
Types include guarantee of the sub-payment -, Payment-, Agreement performance-, Delivery-, Tender Guarantee etc.
Documentary collection is the arrangement of the received documents in accordance to the regulations provided by the bearer (exporter), on the purpose to get the payment or the acceptance. Either financial documents (promissory notes, cheques), or commercial documents (invoices, transport documents and other) may be provided to the bank for the collection.
Bill of exchange is the security, which shall be issued in the order set by the Law. The person (either individual or juridical entity), who issues the bill of exchange, unconditionally undertakes to pay either directly or indirectly (oneself or by charging another entity) the particular amount of money to the person indicated in the bill. There are two types of the bills of exchange: the promissory note and the payable-through draft.
Trade Credit Insurance covers the risk of non payment, due to customers' insolvency, and protracted default (i.e., non-payment six months after original payment due date). For exporting companies, trade credit insurance can also extend over losses arising as a consequence of Political (Country) risk.
More information:
Trade Finance Department
Tel. +370 5 274 5309
LIETUVIŲ
UNICREDIT GROUP
