Transforming Modern Trade Finance
Trade documents and financial workflows are interconnected and vary tremendously from one commercial agreement to another. Payment is a trigger for a document transfer from the seller to a buyer: the buyer completes the payment, and in exchange, the seller transfers the Bill of Lading and any other trade documents to the buyer.
Financial requirements differ from one service to another in terms of conditions, timing, currency, accompanying documents, and payment methods. These factors are determined by the deal’s equilibrium between trust and risk. For instance, when there is a high level of trust between parties, both will often opt to use simple payment methods and conduct the transaction directly between themselves, without the involvement of a third party. Alternatively, low trust and high risk mean the parties may prefer to employ more secure trade finance instruments via a bank or non-banking financial institution (NBFI).
This article will present the various payment methods available and in what circumstances to do so. For brevity, we’ll refer mainly to banks, but NBFIs often play the same role in transactions.