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Companies involved in international trade require a greater level of banking facilities than those that trade domestically. The supplier may require a payment guarantee or a letter of credit before they manufacture or ship the goods. It might take considerable time for the goods to reach their destination, and the seller may be required to provide extended trade credit terms to enable the end-buyer to stock and distribute the goods.
The required facility may thus be larger than can be provided on a conventional ‘balance sheet’ lending basis. The ability to accelerate the receipt of sales proceeds and thereby create liquidity can help to bridge both the funding and the ‘credit gap’.
This chapter describes how the discounting of debt obligations can reduce the risk, period and amount of a bank’s credit exposure to their client, and how the purchase of trade receivables provides an enhanced method of financing sales invoices.