Trade financing is available for buyers and suppliers in all the phases and processes in the supply chain as the figure below shows:
Financing the Supply Chain
Source: Paul Robinson, HSBC
There are two types of trade finance: supplier-centric and buyer-centric.
The main types of supplier-centric financing include:
- inventory finance
- pre-shipment financing:
- for letters of credit, acceptances, bills, evidentiary, e.g. bills of lading
- payment guarantees
- Purchase Order finance
- in-transit/warehouse financing
- receivables finance including forfaiting and export factoring
- post-shipment financing - upon shipment of the goods, suppliers provide the bank with invoice information so loan can be converted into post-shipment financing (sponsored by the buyer).
Many governments also offer programmes that guarantee export working capital facilities to their exporters. With these programmes, the exporters are able to obtain needed facilities from commercial lenders when financing is not available or when their borrowing capacity needs to be extended.
The main types of buyer-centric finance include:
- payables finance/post acceptance financing - covers the period between the creation of a payment obligation by the buyer and the maturity of the payment
- reverse factoring / supply chain finance from banks and the specialist financing platforms
- distributor finance programmes to ensure that distributors can purchase the exporter's goods.
Global Trade Programmes
In response to the lack of liquidity for global trade governments are partnering with banks in a series of global trade programmes. These Export Credit Agency arrangements are providing credit and liquidity.