Trade Finance Goes Creative: A Portfolio of Innovative Deals

For every action, there is an equal and opposite reaction.” As it turns out, Newton’s law applies not only to the world of physics but also to today’s global financial operations. For instance, a mutaual funding company begins sourcing funding operations and services from an overseas supplier at lower costs. But, that same financial arm now needs to figure out an efficient way to move the financial goods and services s from the overseas to the markets where they’ll be sold—an equal and opposite reaction that can cut into the very savings generated by the move to an offshore supplier.

So now in a global economy, with goods made and warehoused all over the world, the elongated supply chain makes it more difficult to fund working capital.Also, trading partners have historically relied on document-intensive letters of credit to facilitate global trade transactions. At the start of a relationship, letters of credit are great because they minimize risk and also are time- and labor-intensive and tie up critical working capital by reducing availability under borrowing base formulas.

Governing this financial trading, the Organisation for Economic Co-operation and Development (OECD) changes its existing rules to simplify the structuring of privatized projects like capital intensivenss and repayment periods.

Now we will discuss some key examples, in which we will visualize the creativity of trade financing across different segments and geographical borders:

In order to manage the working capital without any involvement of additional cost, the kay bank has been in search of finding alternatives to to export the letters of credit. The keybank is innovating in order to omit the accounts recievables column off from companies accounts book buying the insured promissory note or the account receivable and providing the company with immediate working capital.

The JP Morgan has designed Fast Track program for the clients of strong international growth with a concurrent strong need for working capital financing and a growing amount of work-in-process to allow higher advance rates against work-in-process than normal asset-based or conventional bank financing would permit.

Innovations are countless, but what is of prime importance is to develop and mantain it. I believe that the coming years will further see a lot of innovative acts and strategic approachs going in fainancial trading sector.