Trade finance

Trade finance is a category of facilities that fund the gap between paying an overseas or domestic supplier and receiving payment from the eventual customer, commonly used to fund a specific purchase order or shipment rather than general working capital. It includes instruments such as letters of credit, which guarantee payment to a supplier, and purchase order or supply chain finance, which advances funds against a confirmed order before goods are even shipped. Because trade finance is transaction-specific, lenders assess the underlying commercial arrangement closely — the buyer, the supplier, the goods, and the documentation trail — rather than relying purely on the borrower's balance sheet, which makes it accessible to businesses with a strong order but limited trading history. Trade finance is often used alongside invoice finance in an import or export business's broader working capital structure, funding the purchase side while invoice finance funds the sale side of the same trading cycle.

Related

Trade finance · Letter of credit · Invoice finance