Trade finance guide

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TRADE FINANCE - INTRODUCTION What is trade finance?

Trade Finance
Guide
A Quick Reference
for U.S. Exporters
Trade Finance Guide: A Quick Reference for U.S. Exporters is designed to help U.S. companies, especially small and medium-sized
enterprises, learn the basic fundamentals of trade finance so that they can turn their export opportunities into actual sales and
achieve the ultimate goal of getting paid-especially on time-for those sales. Concise, two-page chapters offer the basics of
numerous financing techniques, from open accounts, to forfaiting to government assisted foreign buyer financing.
TRADE FINANCE GUIDE
Table of Contents
Introduction ..................................................................................... 1
Chapter 1: Methods of Payment in International Trade .......................... 3
Chapter 2: Cash-in-Advance.................................................................. 5
Chapter 3: Letters of Credit................................................................... 7
Chapter 4: Documentary Collections..................................................... 9
Chapter 5: Open Account ....................................................................11
Chapter 6: Export Working Capital Financing .......................................13
Chapter 7: Government-Guaranteed Export Working Capital
Loan Programs ...................................................................15
Chapter 8: Export Credit Insurance ......................................................17
Chapter 9: Export Factoring.................................................................19
Chapter 10: Forfaiting ...........................................................................21
Chapter 11: Government-Assisted Foreign Buyer Financing....................23
Chapter 12: Foreign Exchange Risk Mangement.................................... 25
Published April 2008
TRADE FINANCE GUIDE
Introduction 1
Opportunities, Risks, and
Trade Finance
elcome to the second edition of the Trade Finance Guide: A Quick Reference for
U.S. Exporters. This guide is designed to help U.S. companies, especially small
and medium-sized enterprises (SMEs), learn the basic fundamentals of trade
Wfinance so that they can turn their export opportunities into actual sales and achieve the
ultimate goal of getting paid--especially on time--for those sales. This guide provides
general information about common techniques of export
financing. Accordingly, you are advised to assess each
technique in light of specific situations or needs. This
edition includes a new chapter on foreign exchange risk A Quick GlAnce
management. The Trade Finance Guide will be revised
and updated as needed. Future editions may include new Trade Finance Guide
chapters that discuss other trade finance techniques and A concise, simple, and easy-to-understand guide
related topics. for trade finance that is designed especially for U.S.
small and medium-sized exporters.
Benefits of Exporting Trade Finance
The United States is the world's largest exporter, with $1.5 A means to turn export opportunities into actual
trillion in goods and services exported annually. In 2006, sales and to get paid for export sales--especially on
the United States was the top exporter of services and time--by effectively managing the risks associated
second largest exporter of goods, behind only Germany. with doing business internationally.
However, 95 percent of the world's consumers live outside
of the United States. So if you are selling only domesti- Opportunities
cally, you are reaching just a small share of potential ? Reaching the 95 percent of customers worldwide
customers. Exporting enables SMEs to diversify their who live outside the United States
portfolios and insulates them against periods of slower ? Diversifying customer portfolios
growth in the domestic economy. Free trade agreements
have opened in numerous markets including Australia, Risks
Canada, Chile, Israel, Jordan, Mexico, and Singapore, ? Non-payment or delayed payment by
as well as Central America. Free trade agreements cre? foreign buyers
ate more opportunities for U.S. businesses. The Trade ? Political and commercial risks as well as cultural
Finance Guide is designed to provide U.S. SMEs with the influences
knowledge necessary to grow and become competitive in
foreign markets.
Key Players in the Creation of the Trade Finance Guide
The International Trade Administration (ITA) is an agency within the U.S. Department of
Commerce, and its mission is to foster economic growth and prosperity through global
trade. ITA provides practical information to help you select your markets and products,
ensures that you have access to international markets as required by U.S. trade agreements,
and safeguards you from unfair competition such as dumped and subsidized imports.
ITA is made up of the following four units: (a) Commercial Service, the trade promotion
unit that helps U.S. businesses at every stage of the exporting process; (b) Manufacturing
and Services, the industry analysis unit that supports U.S. industry's domestic and global
competitiveness; (c) Market Access and Compliance, the country-specific policy unit that
keeps world markets open to U.S. products and helps U.S. businesses benefit from our trade
agreements with other countries; and (d) Import Administration, the trade law enforce?
ment unit that ensures that U.S. businesses face a level playing field in the domestic mar?
ketplace. Visit for more information.
Partnership and Cooperation
The Trade Finance Guide was created in partnership with FCIB, an Association of
Executives in Finance, Credit, and International Business. FCIB is headquartered in
Columbia, Maryland, and is a prominent business educator of credit and risk management
to exporting companies of every size. FCIB's parent, the National Association of Credit
Management, is a non-profit organization that represents nearly 25,000 businesses in the
United States and is one of the world's largest credit organizations. This Trade Finance
Guide was also created in cooperation with the U.S. Small Business Administration,
the Export-Import Bank of the United States (Ex-Im Bank), the International Factoring
Association, and the Association of Trade & Forfaiting in the Americas. Contact informa?
tion for these organizations can be found throughout this guide.
For More Information about the Guide
The Trade Finance Guide was created by ITA's Office of Finance, which is part of ITA's
Manufacturing and Services. The Office of Finance is dedicated to enhancing the domestic
and international competitiveness of U.S. financial services industries and to providing
internal policy recommendations on U.S. exports and foreign investment supported by
official finance. For more information, contact the project manager for the guide, Yuki
Fujiyama, tel.: (202) 482-3277; e-mail: yuki.fujiyama@mail..
How to Obtain the Trade Finance Guide
The Trade Finance Guide is available online at , the U.S. government's export por?
tal. You can obtain printed copies from the Trade Information Center at 1-800-USA-TRAD(E)
(8723), and from the Commercial Service's global network of domestic Export Assistance
Centers and overseas posts. To find the nearest Export Assistance Center or overseas
Commercial Service office, visit or call the Trade Information Center.
Where to Learn More about Trade Finance
As the official export credit agency of the United States, Ex-Im Bank regularly offers trade
finance seminars for exporters and lenders. Those seminars are held in Washington, D.C.,
and in many major U.S. cities. For more information about the seminars, visit exim.
gov or call 1-800-565-EXIM (3946). For more advanced trade finance training, FCIB offers
the 13-week International Credit and Risk Management online course, which was devel?
oped with a grant awarded by the U.S. Department of Commerce in 2001. For more infor?
mation about the course, visit or call 1-888-256-3242.
2
U.S. Department of Commerce
International Trade Administration

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