What is International Trade Finance?

International trade is sending goods and services across the border and the process of financing such trade is international trade finance.

Main Parties involved in International Trade

Let's quickly go through the various players usually involved in international trade.

Exporters are the sellers of the goods. Importers are the buyers of the goods.

Banks play a vital role between the buyer and the seller acting as intermediaries,  sometimes just as agents, sometimes taking up much more important role as finance providers.

Transport Companies or freight forwarders are involved in actual movement of the goods. If its international movement then its generally shipping companies and airlines. If its inland movement its mainly by lorry/trucks or rail.

The journey made by the goods is a long one in international trade. Even in inland trade during the journey from the seller to the buyer, many unforeseen circumstances may come. Insurance companies insure the goods so that the risk of financial loss due to damaged goods can be avoided.

In international trade various kinds of certificates may be required related to the goods shipped. It may be a Certificate of Origin provided by a Chamber of Commerce of a country. It may be a Health certificate, a Fumigation certificate or a Test report from Laboratory etc. There are various certification authorities/ agencies that provide these certificates.

Last but not the least, there are rule setting and regulatory bodies that govern international trade– mainly World Trade Organization (WTO) which mainly acts as a forum for international trade negotiations and International Chamber of Commerce (ICC) which is the rule making authority for international trade. Though these rules are voluntary, these are followed in thousands of trade transactions taking place every day.

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Next:    Methods of Payment in International Trade