Trade Finance
The function of trade finance is to introduce a third-party to transactions to remove the payment risk and the supply risk while providing the exporter with receivables according to the agreement and the importer with extended credit. Suppliers, banks, syndicates, trade finance houses and buyers all provide trade financing.
| Term | Definition |
|---|---|
| Accounts receivable insurance (ARI) | An insurance policy purchased from a financial institution or export credit agency (ECA) that exporters may obtain to help secure their receivables in case of non-collection. Accounts receivable insurance can also help maintain regular cash flow. |
| Advance payment | A payment to a seller in advance of the goods being shipped. Reasons for adopting this payment method include lack of finance to buy and/or prepare the goods for shipment or that exporters are unwilling to ship goods to the country of the buyer for reasons of country risk, or that the seller may not have the finance to buy and/or prepare the goods for shipment. Exporters sometimes require advance payments by importers as protection against non-payment or to purchase supplies to fulfill the order. In addition, higher advance payments may be required for specialized products, as a hedge against buyer default when it may be more difficult or not possible to sell the products to a secondary buyer. |
| Beneficiary | Someone who is eligible to receive distributions from an insurance policy or some other form of trade finance instrument. Beneficiaries are either named specifically in these documents or they have met the stipulations that make them eligible for whatever distribution is specified. |
| Blocked currency | A currency that is not available to be exchanged for any other currency, usually due to restrictions from the national government, also referred to as non-convertibility/transferability of currency. |
| Crown corporation | A corporation that is established and regulated by a country’s state or government. A Crown corporation is commercially owned by the government. Civil servants partially control and operate this type of company, which is meant to serve the public interest as determined by the current government. |
| Demurrage | Charges incurred when a shipment must be stored in a warehouse during transit from the exporter to the importer. These charges may be incurred in the event of dispute between parties to a letter of credit (L/C) and can become substantial in a short period of time. |
| Exchange rate | The price of one currency in terms of another, i.e. the number of units of one currency that may be exchanged for one unit of another currency as in 1 GBP (British Pound Sterling) = 1.65 CDN (Canadian Dollar). |
| International Chamber of Commerce (ICC) | A Paris-based organization that plays a key role in international trade through its Uniform Customs and Practice for Documentary Credits (UCP) and other quasi-regulatory articles that provide the infrastructure for trade among over 160 nations that have voluntarily agreed to be bound by these articles. The ICC has several key expert groups, and provides interpretations and opinions on the UCP as well as arbitration services in the event of disputes between parties involved in international commerce. |
| Incoterms® | rules A set of standardized and internationally recognized trade terms established by the International Chamber of Commerce (ICC). They are routinely referenced in contracting and trade finance, and are critical for resolving contractual disputes. |
| Pricing strategy | A planned approach to pricing within the overall marketing strategy for the target market. Examples of pricing strategies include flexible, static, penetration and value-based pricing, market maintenance, and price skimming. |
https://tradefinanceanalytics.com/glossary
http://www.tradeready.ca/2017/topics/international-trade-finance/20-trade-finance-terms-need-know/