16.2 Stakeholders in Trade Finance

While discussing international trade finance, it is important to know the stakeholders in trade finance. Just as it takes many parts to make an international business run smoothly, there are many people, organizations, and entities that have a “stake” in the success of any business. In this section, we will look at who these stakeholders are and how they affect international business. To facilitate understanding, we have divided stakeholders into two categories: users of trade finance and providers of trade finance.

Users of Trade Finance

Users of trade finance are the parties that need financial support during cross-border trading and can be any of the following:

• Exporters: Exporters are the sellers in any trade transaction. Sellers sell goods and services and are paid for them. In any trade transaction, it is important that sellers are paid on time as most of the trade works on credit. Sellers might have promised a payment to another party based on the money they will receive from a transaction. Delay in payment in one transaction may have ripple effects that can extend to other parties and can impact exporter’s image/goodwill in the market.
• Importers: Importers are the buyers in any trade transaction. Buyers buy goods and services and pay for them. On the importer’s part, it is important that they do not miss or delay payments as this may impact their relationships with the other parties in trade.

By now, you might have started getting an insight on the importance of payment terms in a trade transaction. Payment terms are the payment-related promises between exporters and importers. They may include components such as method of payment, time of payment, mode of payment and has contractual obligations on all the parties. In all successful trade transactions, payment terms are made with agreement between both the parties and are followed with diligence to maintain healthy trade relationships.

Providers of Trade Finance

The parties that help the users of trade finance with their finance-related needs are called the providers and can be any of the following:

• Banks: In international trade, banks act as financial intermediaries. A financial intermediary is a party that stands between two other parties and supports them with all their financing needs, (e.g., accepting and issuing payment, verifying, and issuing documents etc.). These trade activities are so big for banks that sometimes they have specialized departments working to manage trade transactions. In addition to helping trade partners to manage their money flows, banks also provide them with advisory and consulting services.
• Financial Institutions: Other than banks, there are certain financial institutions around the world that help users with their specialized trade finance needs. For instance, export credit agencies help exporters by providing export credit finance and helping them in getting started with their businesses in difficult times. Every country has their public and private financial institutions catering to different trade finance needs of their clients.

Sometimes, we also use the term “financial intermediaries,” which can be banks or financial institutions or other agents and third-party service providers that collaborate with banks and financial institutions to support foreign trade transactions. Forfaiting and factoring, for instance, help importers by buying their receivables and getting quick access to money.

Attributions

“16.2 Stakeholders in Trade Finance” is adapted from “1.3 Value Chain and International/Global Trade” from Global Value Chain by Dr. Kiranjot Kaur and Iuliia Kau is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.