This document discusses trade finance products and services. It describes letters of credit, bank guarantees, export, and import. Letters of credit are undertakings by a bank to make payment to an exporter if they present complying documents. Bank guarantees are undertakings by a bank on behalf of an applicant to make payment to a beneficiary if the applicant fails to meet obligations. Common methods of international payment discussed are cash in advance, letters of credit, bills for collection, and open account.

1. TRADE FINANCE

2. CONTENTS
Description
Products and Services
Method of payment

3. Description
• While a seller (or exporter) can require the purchaser (an importer) to prepay for
goods shipped, the purchaser (importer) may wish to reduce risk by requiring the
seller to document the goods that have been shipped.

4. Products and Services
Letter of credit
• It is an undertaking/promise given by a Bank/Financial Institute on behalf of the
Buyer/Importer to the Seller/Exporter.
• If the Seller/Exporter presents the complying documents to the Buyer's
designated Bank/Financial Institute as specified by the Buyer/Importer in the
Purchase Agreement then the Buyer's Bank/Financial Institute will make payment
to the Seller/Exporter.
• the importer's bank may provide a letter of credit to the exporter (or the exporter's
bank) providing for payment upon presentation of certain documents, such as
a bill of lading.
• The exporter's bank may make a loan (by advancing funds) to the exporter on the
basis of the export contract.
• A bill of lading is a document issued by a carrier to acknowledge receipt of cargo
for shipment. In British English, the term relates to ship transport only, and in
American English, to any type of transportation of goods.

5. Bank guarantee
• It is an undertaking/promise given by a Bank on behalf of the Applicant
and in favour of the Beneficiary.
• Where as The Bank has agreed and undertakes that, if the Applicant
failed to fulfill his obligations either Financial or Performance as per the
Agreement made between the Applicant and the Beneficiary.
• Then the Guarantor Bank on behalf of the Applicant will make payment
of the guarantee amount to the Beneficiary upon receipt of a demand or
claim from the Beneficiary.

6. • Bank guarantee has various types
 Tender Bond
Advance Payment
Performance Bond
 Financial
 Retention
 Labour
Export
• The term export means sending of goods or services produced in one country to
another country.
• The seller of such goods and services is referred to as an exporter; the foreign buyer is
referred to as an importer.

7. Import
• An import is a good brought into a jurisdiction, especially across a
national border, from an external source.
• The party bringing in the good is called an importer. An import in the
receiving country is an export from the sending country.
• Importation and exportation are the defining financial transactions of
international trade.
• Collection and discounting of bills: It is a major trade service offered by
the Banks.
• The Seller's Bank collects the payment proceeds on behalf of the Seller,
from the Buyer or Buyer's Bank, for the goods sold by the Seller to the
Buyer as per the agreement made between the Seller and the Buyer.

8. New Developments

9. Method of payment
• Popular methods of payment used in international trade include:
• cash with order(CWO)-the buyers pay cash when he places an order.
• cash on delivery(COD)-the buyer pays cash when the goods are delivered.
• documentary credit(L/C)-A Letter of credit (L/C) is used; gives the seller two guarantees
that the payment will be made by the buyer:one guarantee from the buyer's bank and
another from the seller's bank.
• bills for collection(B/E or D/C) -Here a Bill of Exchange (B/E)is used; or documentary
collection (D/C) is a transaction whereby the exporter entrusts the collection of the
payment for a sale to its bank (remitting bank), which sends the documents that its buyer
needs to the importer’s bank (collecting bank), with instructions to release the documents
to the buyer for payment.
• open account: This method can be used by business partners who trust each other, the two
partners need to have their accounts with the banks that are correspondent banks.
• Methods of payment: Cash in Advance (Prepayment) Documentary Collections Letters of
Credit Open Account Combining Methods of Payment Summary Resources Activities
Assessment