Trade+Finance+&+Credit

**DOMAIN**** / ** **PROCUREMENT & TRADE FINANCE/****__ FINANCING __**


 * Trade Finance **

The free exchange of money (cash flow) is essential for cross-border trade. A smooth cash flow process requires //accessible credit and financing mechanisms// managed by //competent authorities// and utilized by qualified participants.

The participants include vendors, capitalized customers, commercial lending institutions and credit providers able to generate cash flow by using monetary lending & payment instruments.

//** Governments > **//// (contracts, grants, export & tax credits) // //** Commercial Banks > **//// (loans, credit accounts & histories, interest) // //** Int’l Donor/Lending Organisations > **//// (loans, contracts, grants, “donations”) // //** Customer > **//// (advance payments) **and Vendor >** (customer credits) // //** Other Credit Institutions > **//// (credit accounts & loans) //

The Customer and the Vendor constitute “principle” trade partners. Customers are willing to provide payment in exchange for a productthey require and vendors are willing and capable of delivering the required product for the customer’s monetary consideration (payment). Generating available money for the transaction requires trade finance.


 * // Definition //**

// “Trade Financing” //// is the process whereby monetary resources are obtained by customers (to acquire) and vendors (to provide) commercially available products in cross-border trade. // Financing is provided to the //intermediary participants (Trade Partners)// in the supply chain. It is essential that monetary resources necessary for successful vendor performance and product delivery are made accessible to all trade partners when necessary. //Government//, Multi-national and //commercial// institutions provide interdependent systems of financing and credit depicted in this diagram:


 * TRADE FINANCE “PRODUCTS” & PARTICIPANTS **



// Financial “products” // such as //trade insurance//, //collateral registries// for recognizing tangible assets (that can be used to secure loans), and credit assessment bureaus (for the examination of credit ratings) - facilitate the generation of monetary resources (financing) that supplies cash flow. //Accessible finance and short term credit// programs can be paired with //financial training programs// and //credit advisory forums//.

// International Financial Organisations // (e.g.the //World Trade Organisation (WTO)// and the World Bank’s //International Finance Corporation IFC)// //harmonise//, encourage and guide these efforts directly through //contracts// and indirectly through //forums and advisory programs//. They advocate continuing improvement and guidance on obtaining…


 * * ** Accessible credit and payment guarantors (//Letters of Credit & Guarantee//) to cover trade risk **
 * ** Establishing //collateral registries// and //Confirming Banks// able to provide vendor capital, and **
 * **// trade insurance carriers //**** able to provide credit, product, shipping and personal coverage ** ||


 * // Intermediary Service Providers (ISPs) //**

Additional to the principle trade partners (customer & vendor), intermediary trade partners comprise the other second and third party individuals, businesses and organizations participating in a fiscal transaction for the acquisition of a commercial product. From initial __budget assessment__ to __final payment__ this can include more than two dozen entities which include (in addition to the buyer, the seller and their purchase agents) the following:

//international donor or lender organizations,// //collateral registry appraisers,// //credit bureaus,// //commercial bank guarantors,// //credit insurance providers,// //currency traders (conversion),// //local banks,// //invoice and payment service providers (SPs),// //tax inspectors (invoice data),//

//public sector tax & duty examiners and collectors,//

//independent business auditors// //and the legal authority for collection of income tax//

Indirect participants include the //MBN programs//, //confirming banks// and //financial forums// that offer financial assistance, advice and advocacy. Each may be a potential cash flow provider able to serve as creditor, lender and money handler for (the processing of cash transfers). Commercial banks and lending institutions manage government sponsored exportaccounting that simplify currency transfer. Together with credit bureaus they can furnish pre-approved credit accounts to insure confidence in vendor integrity, up-to-date assessment of financial capability and payment guarantees for individual sales transactions. **// Trade Barriers & Restrictive Trade Practices //**

Poor credit, a dearth of local banking and limited understanding of financial systems are //barriers to obtaining financing & credit. Governments// focused only on protecting local trade may unnecessarily impose restrictive duties and special import fees on imported products. The UNECE recognizes lack of // training and instruction // (in finance and trade) as an impediment. Restrictive trade practices may be used to limit product //source/origin// and favour domestic products during evaluation for award.


 * // Finance & Payment Mechanisms //**

// Accessible ////__insurances__// providing monetary protection of assets, shipments, delivery and vendor payment also serve to establish vendor credibility, assure proper documentation, protect product shipment and encourage payment. Confirming banks can provide these services as well as furnish the bid, performance and completion bonds required for conduct of business in certain regions of the world.

Other approaches implemented by the World Bank, WTO, EU and other regional trade organizations include establishing // collateral registries //, //mobile banking//, //e-signatures// and multi-national programs for //fighting corruption and bribery//.

// Harmonisation // of product eligibility requirements, specifications, qualification standards, and application documentation (among financial institutions) are priorities for both developed and emerging economies. Institutions and organisations that include the //PIF//, //ICC//, WTO and WB/IFC encourage financial assistance initiatives compatible with regional and country cultures and systems.