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Opportunities, Risks, and Trade Finance

The Trade Finance Guide explains the basics of trade finance so that U.S. companies, especially small- and medium-sized enterprises (SMEs), can evaluate appropriate financing options to help ensure they get paid for their export sales. This guide supports the Administration’s initiative to expand the number and diversity of U.S. businesses competing in global markets as outlined in the federal inter-agency Trade Promotion Coordinating Committee’s 2022 National Export Strategy.

The guide includes a new chapter addressing the recent surge in business startups and potential sources of capital that can help these new companies consider exporting and compete in niche markets globally. You will also find information on how digitalization is helping to transform trade finance, with the prospect of increasing access, streamlining processes, and reducing costs. We have also included introductions to each of the three U.S. government export finance agencies in their respective chapters and have updated other chapters, as appropriate, in collaboration with experts from relevant fields. 

This guide is a concise and easy-to-understand guide that explains the basics of trade finance so that U.S. exporters can evaluate financing options to help ensure they get paid for their export sales.

Trade Finance - a set of techniques or financial instruments used to mitigate the risks inherent in international trade to ensure payment to exporters while assuring the delivery of goods and services to importers.

Trade Finance Guide Report Index

 

Access to Capital for Startups in Global Markets

Startup capital, also referred to as seed money, is money raised by an entrepreneur or an organization to launch and run a new business from the ground up.

Methods of Payment in International Trade

To succeed in today’s global marketplace and win sales against foreign competitors, exporters must offer their customers attractive sales terms supported by the appropriate payment methods.

Cash-in-Advance

With the cash-in-advance payment method, the exporter can eliminate credit risk or the risk of non-payment since payment is received before the goods are shipped.

Letters of Credit

A Letter of Credit is a commitment by a bank on behalf of the applicant (importer) that payment will be made to the beneficiary (exporter) provided that the terms and conditions stated in the letter have been met.

Documentary Collections

A transaction whereby the exporter entrusts the collection of payment to the exporter’s bank (remitting bank), which sends documents to the importer’s bank (collecting or presenting bank), along with payment and document release instructions.

Open Account

An open account transaction in international trade is a sale where the goods are shipped before payment is due, which is typically in 30, 60 or 90 days.

Consignment

Consignment in international trade is a variation of the open account method of payment in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end-customer.

Export Working Capital Financing and Government Guarantees

Export working capital (EWC) financing allows exporters to purchase the goods and services they need to support their export sales.

Export Credit Insurance

Export credit insurance protects an exporter of products and services against the risk of non-payment by a foreign buyer.

Export Factoring

Export factoring is a complete financial package that may include and combine export working capital financing, credit protection, foreign accounts receivable bookkeeping, and collection services.

Forfaiting

Forfaiting is a method of trade finance that allows exporters to obtain cash by selling their medium and long-term foreign accounts receivable at a discount on a “without recourse” basis.

SBA Export Finance Programs

SBA helps U.S. small or medium sized businesses start exporting and/or expand export sales through their three main programs.

EXIM Export Finance Programs

The Export-Import Bank of the United States is the official export credit agency of the United States and supports American jobs by facilitating U.S. exports through three main programs.

USDA Export Finance Programs

U.S. Department of Agriculture's Foreign Agricultural Service operates two export finance programs to assist the financing of U.S. agricultural products and goods and services.

Foreign Exchange Risk Management

To a U.S. exporter who chooses to trade in foreign currency, FX risk exposure is the potential financial losses due to foreign currency depreciation against the U.S. dollar when payment is due.

Emerging Trends: The Digitalization of Trade Finance

Digitalization promises to reduce time and economic costs for small and medium sized enterprises, allowing them to generate more predictable cash flows from export sales and better allocate working capital in a time-efficient manner.