Trade Finance Types:

• Loan or Working Capital Facility
• Loan terms
• Credit Letter 
• Discounting of Receivables (also known as Factoring, Discounting, and Cheque Discounting)
• Bonds or Assurances

Options for Trade Finance

GSPU’s trade finance advising service has expertise in assisting firms in Bahrain.

• Working capital management

The gap between current assets (cash, inventory, and accounts receivable) and liabilities (accounts payable, short-term borrowing, and accrued liabilities) is known as working capital.

The working capital cycle consists of the purchase of raw materials, revenues from sales and payments to its suppliers. The finance team may identify the working capital shortfalls based on this research and find sources of funding for its maintenance.

• Loan terms

A term loan is an advance from the bank that is paid back over a series of instalments. Along with the fixed instalments, term loans require a rate of interest that is either fixed or changing. Term loans are typically used by businesses to buy fixed assets. According to the length of the loan, term loans can be divided into three categories: short-term loans, intermediate-term loans, and long-term loans. Collateral may also be needed for a term loan to lower the risk of a payment default.

• Credit Letter

Documentary credit, often known as a letter of credit (LC), is an irrevocable commitment made by a bank to pay a beneficiary if the beneficiary presents the required documents and the LC’s terms and conditions are met. Due to variables like distance and ambiguity about a party’s sincerity, the Exporter and Importer in international trade use an intermediary such as a bank to guarantee the payments and delivery of goods. If the buyer is unable to pay, the bank will be obligated to cover the entire sum.

Credit Letter’s advantages

• To the buyer
• Facility not reliant on funds
• Option for financing without interest
• To the seller
• Reduces the credit risk
• Utilize pre-shipment financing based on the LC.
• Timely money receipt

Discounting of receivables

Discounting of invoices: Discounting of invoices enables a firm to collect a portion of the increased invoice amount upon presentation of the invoice and the remaining portion upon receipt of the customer’s payment. The ability to quickly receive funds through invoice discounting will improve the company’s cash flow. This facility is often customer-specific and under the Bank’s agreement with the customer. Before discounting an invoice, the bank will consider the clients’ ability to pay, the borrower’s creditworthiness, and additional security.

Cheque discounting: A facility offered by the bank entails financing the transaction and supplying monies in advance of the due date of a PDC issued by a client. With this agreement, the provider receives the money right away, giving the customer a grace period to pay.

Bonds or Assurances

Bonds or guarantees are services provided by a bank that gives the buyer security if the seller is unable to fulfil the commitment. When the seller fails to deliver the ordered items, the customer is compensated by the bank. Tender Bonds, Performance Bonds, Advance Payment Bonds, Retention Bonds, and Payment Guarantee are some examples of the various bonds or guarantees based on “on-demand” and “conditional” classes.