What Are the Different Types of Trade Finance Products?

Trade finance emerged along with trade development. The origin of trade finance can be traced back to the 13th century or even the first period of commodity exchange. Its initial business was only to provide exchange and payment for the trading activities of traders in various countries, and then gradually expanded to trade-related financing, cash flow management, and so on. The trade services provided by early banks to enterprises are mainly concentrated on traditional settlement methods such as remittances, letters of credit, and collections. The form of trade financing is mainly based on the most basic remittance.

Trade finance

(A financial service)

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Trade finance emerged along with trade development. The origin of trade finance can be traced back to the 13th century or even the first period of commodity exchange. Its initial business was only to provide exchange and payment for the trading activities of traders in various countries, and then gradually expanded to trade-related financing, cash flow management, and so on. The trade services provided by enterprises in advance banks are mainly focused on remittances,

Since the second half of the 20th century, driven by the information technology revolution, the world's labor division model has undergone profound changes, and trade finance has moved from providing basic services such as trade settlement and financing to integrated financial services.

Trade finance is a comprehensive financial service that runs through the entire value chain of trade activities for domestic or transnational trade in goods and services on the basis of the debt and debt relationships between the two trading parties. It includes basic services such as trade settlement and trade financing, as well as value-added services such as credit guarantee, hedge and financial management.

Specifically, first, trade settlement is still the most basic trade finance business, which facilitates corporate transactions and reduces costs. Providing domestic and cross-border transaction settlement for enterprises is still the starting point and one of the most important contents of banking trade financial services. This kind of service enables companies in two completely unfamiliar countries and regions to develop into counterparties through the intermediary role of banks.

Second, trade finance is the core of trade finance. Trade finance always goes hand in hand with trade, providing financial support to all parties involved in trade activities. In the trade process, trade finance acts as a lubricant and catalyst. In recent years, in response to the new characteristics of the development of international trade, commercial banks have developed, innovated, and promoted many new trade financing products, including forfaiting, factoring, receivables pledge financing, letter guarantee financing, order financing, and cargo pledge Financing, risk participation, trade financing and capital product portfolio.

These new trade financing products have not only promoted changes in bank service capabilities and internal risk control methods, but also helped companies reduce costs, reduce inventory, expand sales, and accelerate capital turnover, providing strong support for world economic and trade development.

Third, credit guarantees, hedging, and financial management are value-added financial services provided by banks to trade participants to meet the diverse financial needs of enterprises. Credit guarantee is a service provided by banks to trade participants with the main purpose of enhancing credit. It plays a significant role in helping buyers and sellers to establish mutual trust and facilitate transactions. Hedging is a function of a market environment where commodity prices, interest rates and exchange rates fluctuate more and more frequently. Professional services for banks to help customers effectively avoid risks; financial management is a value-added service provided for the financial concentration, fund collection, and financial management outsourcing of some large enterprises in the industrial chain, including accounts receivable management and financial statement optimization , Cash management and many more. These services have further enriched the trade financial services system.

Trade finance, as a relatively independent business system in banking company finance, has the following outstanding features:

First, the service object is specific. Trade finance serves the real economy and is the basic business of commercial banks. The essence of trade finance is to provide services such as payment, settlement, credit, and credit guarantee for goods and services transactions. These services closely revolve around the real economy of trade. It is precisely based on this characteristic that the development and innovation of trade finance will not become a pure virtual financial business like financial derivatives, nor will bubbles and crises be formed due to excessive leverage.

Second, the debt is self-paying and the risks are relatively controllable. The so-called self-reimbursement refers to the bank's provision of short-term financial products and closed loans based on the company's real trade background and the credit strength of upstream and downstream customers, in a single or line of credit, to determine the future cash flow generated by corporate sales income or trade As a direct source of repayment, rather than relying solely on the comprehensive cash flow of the company at the credit expiry stage.

The key point of the self-repaying nature of trade financing is that banks rely on the control of logistics and capital flow, or the responsibilities and credibility of powerful related parties, and grant credits under the premise of effectively controlling the risk of credit funds, which has fundamentally changed. The bank's concept of loan review and credit method, which is difficult for those who had difficulty obtaining liquidity loans from banks because they could not provide effective mortgage collateral.

Characteristics of the development of trade finance business in the new situation Globalization promotes the deep development of trade finance

The nature of the trade financial services real economy determines that more SMEs are included in this financial service system. Under the condition that the self-repaying nature is maintained, trade financial services are more and more widely associated with bank assets, commercial papers, receivables and prepaid accounts, cargo rights documents and other liquid assets with strong realizing ability. In combination, more and more small and medium-sized enterprises rely on the debt and property rights formed in the supply chain to obtain financing services from banks, and trade financial services have shown a tendency to penetrate deeply.

The number of Chinese companies going global has further increased, and global trade and financial services programs are needed. The inevitable consequence of Chinese companies' "going global" is that their procurement, production and sales activities are carried out on a wider global scale. Therefore, formulate a global trade financial service plan to help companies better match logistics and capital flows across time zones, countries, currencies, and dimensions, properly manage the balance of funds receipts and payments, and maximize the use of different currencies and Different countries' interest rate and exchange rate differences to gain benefits and avoid risks will become the focus of future trade financial services.

Chinese financial institutions are going global and the overall strength of providing global trade financing services is constantly increasing. While Chinese companies are "going global", China s major financial institutions have stepped up their efforts to expand their overseas business. The traditional pattern of banks handling international business in China has quietly shifted to a new pattern of going global to provide global services. This has undoubtedly greatly enhanced The momentum of globalization of China's banking trade financial services.

Product portfolios tend to be integrated and integrated

The proportion of single financing settlement has gradually decreased, and the proportion of portfolio solutions has increased rapidly. A single financing and settlement product can no longer meet the needs of most enterprises. While helping enterprises to securely and quickly complete the receipt and payment of funds, integrated trade financial products that can help enterprises maximize capital gains, effectively manage or avoid exchange rate risks have become new favorites for customers.

From providing financing to a single enterprise, it has transformed into providing a comprehensive integrated service solution covering the industrial chain and related enterprises. The supply chain financing in trade finance has formed a typical "1 + N" model. Banks must design the core business of the supply chain and upstream and downstream supply companies as a whole to design a trade financial service program, and Coordination of supply, supply and marketing activities, on the basis of this, provide a package of financing, settlement services and derivative services such as account management and financial consulting to ensure the normal turnover of funds throughout the industry chain.