Over the past 15 to 20 years, we have seen an increase of products being manufactured or sold in overseas markets. Most notably this has occurred in China, where it has transitioned to a broad capitalised based market, allowing the Asia Pacific region to be more economically closer and entwined.
Given the economic growth in these markets, and the ability to produce goods and services much more cheaply then in Australia, it is more then likely that if you are either in the service, retail, manufacturing or technology industry’s, your either importing or exporting goods between here and into the Asia Pacific market.
For many businesses, paying for, or receiving payment from overseas goods and services is usually transacted through telegraphic or wire payments where the international party to the transaction requires payment up front before goods are shipped. This can be difficult in managing your cash flow given that terms can be less flexible. By taking up trade finance arrangements may help alleviate this.
Having spent the last 6 years based in Asia, AAP Financial Solutions can assist with this by linking you into the right specialists in this area.
Types of Trade Finance Solutions
1. Export & Import Trade Finance Loans
A trade finance loan is an advance denominated in either domestic currency or the foreign currency of the payment obligation, enabling exporters/importers to finance their trade commitments on a transactional basis. A trade finance loan must be subject to a genuine underlying trade transaction evidenced by appropriate trade documentation.
2. Bank Guarantee
A bank guarantee is an agreement by the lender to pay a specified amount on behalf of you, the business owner to a specified third party (principal). This enables you to enter trade or financial arrangements without the need to outlay cash (or security) to satisfy conditions dictated by a trade or financial contract.
3. Standby Letters of Credit
Standby credits are payment guarantees, by the lender, to a beneficiary. This product is requested by a seller or a service provider as support for another transaction. It can only be activated in case of non-performance or default of the underlying transaction.
4. Documentary Credits
This may be defined as a formal undertaking, issued by a lender, engaging to honour drawings provided certain requirements, which it contains, are complied with. Typically used by buyers and sellers that are yet to establish a strong relationship. The buyers usually require a prearranged documentary credit facility with their bank.
5. Bid Bonds
It is common business practice when tendering for large capital projects or services, that the tenderer will require a bid bond, giving both your business and the tenderer comfort that the ability to fund the work will be undertaken.
6. Performance Guarantees
Most capital works projects or service contracts put out to tender require the successful tenderer to lodge a Performance Bond after being awarded the contract. The Performance Bond is an indication that the applicant company has the necessary skills and capabilities to carry out the required work and comply with the agreed terms and conditions of the contract.
7. Structured Trade Finance
Structured Trade Finance (STF) is a specialised activity dedicated to the financing of high value commodity flows.
STF transactions are structured around the supply chain and commercial terms of customers, and are used largely in the commodity sector by producers, processors, traders and industrial end-users, and include:
- warehouse financing (finance of commodity inventories)
- borrowing base financing (finance of working capital assets on a revolving basis)
- tolling/processing (finance the conversion or processing of raw commodities into value added products)
- pre-export (prepayment) finance (medium to longer term requirements)