how trade finance works
the function of trade finance is to introduce a third party to transactions to remove the payment risk and the supply risk trade finance provides the exporter with receivables or payment according to the agreement while the importer might be extended credit to fulfill the trade order 1the parties involved in trade finance are numerous and can include 2trade financing is different than conventional financing or credit issuance general financing is used to manage solvency or liquidity but trade financing may not necessarily indicate a buyer s lack of funds or liquidity instead trade finance may be used to protect against international trade s unique inherent risks such as currency fluctuations political instability issues of non payment or the creditworthiness of one of the parties involved below are a few of the financial instruments used in trade finance 3although international trade has been in existence for centuries trade finance facilitates its advancement the widespread use of trade finance has contributed to international trade growth 