Trade finance refers to the products & financial instruments that are being used by banks or financial institutions to finance international trade deals. In other words, when an exporter requires an importer to be prepaid for the goods delivered to reduce the risk of payment failure, the importer’s bank provides exporters with a legal payment surety through a range of trade finance instruments. It shows the bank's legal commitment towards exporters regarding an on-time payment upon the presentation of certain documents, such as the Bill of Lading, etc.
In short, trade finance services including Letter of Credit, Bank Guarantee or Standby LCs etc. make it easier for both the importers & exporters to enter into international trade transactions without associated overseas risks including non-payment & non-performance. Trade finance is a broad term that covers several financial products to provide payment security to the exporters.
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