Import Trade Finance

Import Trade finance is, in the point of view of Importers, how importers get varieties of financings from banks.

2 ways to issue the L/C from the bank

One is Issuing L/C with full margin (Importer gives issuing bank 100% of L/C value to get L/C). For this, the bank has low risk but importers will have some problems of shortage of money.

One is Issuing L/C with credit facility, banks also have a low risk but importers won't have any problems of shortage of money.

Thus, Firms normally choose the second option.

However, Because issuing L/C for banks is a high-risk service. so banks normally categorize different companies, for some with high solvency, they will get a low margin high credit line, vice verse.

4 kinds of "Issuing L/C with credit facility"

1. One is Issuing L/C with goods controllable. For L/C at sight,  Either submit a full goods documents to issuing bank or appoint the issuing bank as consignee. For Usance L/C, as goods have been received so the bank has the full control. As goods are controlled, so importers have a low possibility to default.

• L/C at sight: Beneficiary can get the money immediately from this L/C from issuing bank (within 5 days). 
• Usance L/C: = Deferred payment, Beneficiary only can get the money in a future appointed date from this L/C from issuing bank (eg: 30, 60, 90 days) after submitting the application. 

2. One is Issuing L/C without goods controllable. Opposite of the 1st, Issuing bank has a high risk.

3. One is Issuing Back-To-Back L/C.  In 3 parties trade: Exporter->middleman->Importer

Original L/ C: Middleman (Beneficiary)----------Importer (Grantor)

Back-to-Back L/C: Exporter(Beneficiary)-----------Middleman(Grantor)

Back-to-Back L/C must be applied with original L/C and normally is Usance, Original L/C is normally at sight. As money is confirmed in the original L/C, so the bank has a low risk in issuing back-to-back L/C.

4. One is Issuing Usance L/C payable at sight. Beneficiary hope to get the money immediately(at sight), but exporter wants to defer the payment to a future date(Usance). So neither L/C at sight nor Usance L/C can satisfy this. Thus, Usance L/C payable at sight will let the issuing bank help to pay the beneficiary first and from that date of payment, the interest starts to accumulate until the Usance date. In the end, All the interest+princiapl will be deducted from  Exporter's account.