It represents the instruments companies use to facilitate international commerce.
Before the shipper can generate a profit, the goods must be transported. The uncertainty surrounding this process, timely shipment and delivery, the physical security of the goods, etc., mean a financial risk is being taken.
Trade financing can help facilitate those cross-border transactions and mitigate many of the risks involved.
Trade finance makes it easier for both importers and exporters to conduct business transactions through trade and can lower the risks associated with global trade. It’s an umbrella term, that covers many different financial products that are used.
It introduces a third party to these transactions. This third party provides the exporter with receivables or payment and might provide an importer with credit. Unlike credit or traditional financing , it doesn’t manage solvency or liquidity, rather it protects the parties involved from possible currency fluctuations, political instability, or creditworthiness of one of the parties.