Trade Finance

Trade finance is process of financing commerce, i.e. both domestic and international trade based transactions. It comprises a seller, a buyer along with other service providing institutions to facilitate transactions such as banks, insurers, credit rating agencies etc. This may be considered as a tool to safeguard against the distinct risks present in doing international trade viz. fluctuations in currency conversions, political conditions, creditworthiness of the buyer etc. Some of the majorly used tools are Letter of Credits, Import and Export Bills, Outward Guarantees.

In the Trade Finance module, you can initiate, amend and view Letter of Credits (LC). You can also view details of import and export bills, and export bills under LC, and outward guarantees raised. User can initiate collection and outward Guarantees. For the ease of transaction facility to maintain beneficiary and facility to view lines have been added. You can attach documents required for the Trade Finance transactions.

Workflow

Letter of Credit

Letter of credit is a financial tool which acts as an obligation of the issuing bank to pay the agreed amount to the seller on behalf of the buyer, if seller provides compliant documents about those goods as specifically mentioned in the sales contract or purchase agreement to the advising bank. They are governed by rules set by International Chamber of Commerce known as Uniform Customs and Practice for Documentary Credits (UCP 600).

It is of different types; most commonly used ones are irrevocable LC, transferrable LC, back to back LC and standby LC. Mostly they are used in situations where both parties i.e. seller and buyer are new to each other and are operating in different countries and seller thinks to safeguard against multiple risks involved in the trade.

Import and Export Bills

Bill collection is a trade transaction, in which the exporter forwards the required commercial documents to the importer’s bank, against which the payment is to be done. Banks facilitates documents movement, makes the required checks and then process payments to the exporter against the bill.  

Import bill collection offers a view about the collection from the point of view of an importer and export bill collection offers the same from the point of view of an exporter.

Guarantees

It is a contract released by bank for its customer, who has signed an agreement to purchase goods from a supplier and agrees to fulfil any financial obligations to the supplier in case of default. In other words, if the debtor fails to settle a debt, the bank will cover it. Using this option, user can apply for an Outward Bank Guarantee. For the BG application, user must enter the details in the four tabs available in this option viz. Parties, Commitment Details, Bank Instructions and Guarantee.

Customer Acceptance

There occurs some situations where the sales contract goes for some modification, and in order to replicate the same over bills and letter of credits, acceptance from other party is also required. Using this option, user can accept or reject, the discrepancies raised in import bills or amendments under export Letters of Credit. It is then forwarded for further approval from bank. A search facility is also provided to easily locate the discrepancy or amendment raised.

Beneficiary Maintenance

To ease the user from filling up the details of beneficiary, a facility to maintain beneficiary is added. User can create add, edit or delete beneficiary details and also have different access type, if he wants to share the same beneficiary with other users. Also, it can be defined as in which functions will be able to use the beneficiaries viz. LC, BG or collection. This enables user to directly choose a beneficiary from the maintained list and save time of filling up the detail every time he is initiating a new transaction.

Line Limits Utilization

Banks provide various limits to its customers, which they can use as a credit for different purposes. There can be main lines and sub lines with their limits assigned. There may be some trade finance instruments which are tagged to various lines. This feature will show all the existing lines a customer has and allows user to see the amount is used for which transaction.

There is a widget also provided on the corporate dashboard for a brief snapshot on the existing lines of customer. User can see the lines based on individual party or all the parties at a time. .