Trade finance in UAE

Trade finance has become progressively common in the United Arab Emirates, and most international and local banks offer services to SMEs, allowing them to dealing with international and local markets. We at North Node will help you to get trade finance in UAE easily and effectively without any barrier.

What is Trade Finance

Trade finance describe as the financial products and instruments that are used by companies to make smoother the commerce and international trade. Trade finance makes it smooth and possible for exporters and importers to transact business through trade. Trade finance is an umbrella term which means that includes several financial products that companies and banks use to make trade transactions possible. These includes:

 

  • Purchase order finance
  • Stock Finance
  • Bonds & Guarantees
  • Supply Chain Finance
  • Structured Commodity
  • Finance
  • Invoice Finance

Trade finance gives three major advantages to companies. First, trade finance makes companies capable of cash
flow constraints induced by trade processes to make investments in profitable ventures without requiring the sale
of the condition of high capital protection. Second, trade finance products are customized to these companies’
needs, giving adaptable lines of credit with long repayment terms to assist importers to handle their long financial
gaps. Third, trade financiers give particular equipment to feature global trade transactions, which improves faith
and protection for all groups in the business.

Types of trade finance in UAE Traders generally make an application for trade finance in UAE when their orders surpass their financial abilities. To complete such big orders, exporters, importers, developers, contractors, and manufacturers get different kinds of trade finance facilities in the emirate. Below given a list of different kinds of trade finance facilities –

Letter of Credit

Banks grant documentary letters of credit to traders as an irreversible going through, which is considered the much protected banking tool obtainable for ventures. In a letter of credit arrangement, banks agree to make the payment of the beneficiary given all the papers are given and the trader adheres to all the conditions.
Letters of credit are also known as a financial contract between a bank, a bank’s beneficiary, and a customer. Importers can utilize a letter of credit to make sure that their corporation just pays for goods after the suppliers give proof that the goods have been sent. Exporters can utilize a letter of credit as finance if the purchaser fails to make the payment for the shipped products.

Trust Receipts

A trust receipt is a written legal document that says that the bank will give goods to the customer. The client has to make the payment to the bank after selling the products within a given time duration. Although, the bank will sustain the title to the goods and would reclaim it in case the purchaser fails to follow the conditions agreed on in the trust receipt.
Trade finance in UAE by the manner of trust receipts is more advantageous for traders importing raw materials or semi-finished products. Such importers require materials for their manufacturing procedure but they would get amounts just after selling the properly accomplished goods in the market. Traders facing such kinds of fund needs can contact the trade finance services providers in UAE.

Bank Guarantee

Bank guarantees become important when two groups are responsible to act certain obligations to complete a transaction. The bank guarantee assures the payment of a totality of the amount to the beneficiary. Although, the bank would pay the amount just when the opposite party fails to complete the duties applied in the agreement. The bank guarantee ensures a seller or purchaser from damage or loss increasing from the nonperformance of the other group in the agreement. In case one group fails to work its duties, the other can gather the bank guarantee by filing a suit with a lender and getting the assured amount.

Bank Overdraft

Overdraft features are given by banks that make you capable to withdraw more amount than what you have in your account. Corporations usually apply for overdraft features in the UAE when they are forced to pay the amount from the current account, overextending the available amount. Bank overdrafts can be acquired over a certain time or continue to be available indefinitely. Overdraft features are most suitable for corporations that experience changes in working capital. Approach the finest trade finance service provider in UAE to smoothly get a bank overdraft.

BENEFITS OF TRADE FINANCE IN UAE

Trade finance in Dubai will help in the growth of the business by obtaining financial support from the banks and other financial institutions, which is necessary to operate the business activities of a company.

Trade finance would support businesses that don’t have sufficient cash flow or working capital to complete the business needs. Trade finance will relieve a cash crunch, block money on unsold inventory, and increase the credit period of clients, to a fixed extent.
Trade finance, based on some pre-agreed terms, will help the business to provide a more competitive price and conditions to the customers and suppliers by ensuring timely guaranteed payment to the suppliers. This would also support the business from cash shortages or liquidity gaps by providing options of the overdraft, terms loan, customer invoice discounting, etc.

Trade finance in UAE will give permission the businesses to buy inventories in bulk quantities, providing negotiation and higher than commercial benefits, and volume discounts that will increase profitability. Trade finance also helps the business to make a strong customer/supplier rapport because the payment risk is minimized to the maximum extent.

Facilities of Trade Finance

Overdraft Facility

This is a financing facility that helps the business plan expenditure, payments, raw materials and cost of capital, and access to funds to pay monthly expenses such as utility bills. In case of a possible shortfall in cash, a company may use this option.

Trust Receipts Financing

A trust receipt is a type of short-term loan for goods imported under a letter of credit. Trust receipt financing is the best option for purchase.

Letter of Credit

It is a letter and a guarantee issued to the seller from the bank, guaranteeing that buyers will receive the payment on time by the seller with the correct amount. All letters have clarity and are on the same page to ensure that they are on the same page.

L/C Discounting

This is a form of short-term loan by the bank to the seller. Through a discount, a seller is paid immediately, even if a buyer wants to keep the credit period.

Cheque Discounting

In case, customers can take cash from the bank on the security of past-dated cheques received from customers. Banks provide this facility only when they are fixed that they will receive the amount from the customer on the stipulated date.

Local Bill Discounting

A customer can pledge its local receipt to the bank and get an instant cash facility in exchange for managing daily operations. The receivables are treated as collateral and the bank offers the customer a pledged amount at the agreed interest rate.

Project Financing

This is playing an important role in financing development projects worldwide. All types of projects are being financed worldwide, including power plants, chemical processing plants, transportation structures, telecommunication infrastructure, and manufacturing plants.

HOW DOES TRADE FINANCING IN UAE WORKS?

The work of trade finance in UAE is to present the third party to transactions to eliminate the supply hazard and the payment hazard. Trade finance in UAE delivers the exporter receivables or payments in accordance with the contract while extending credit to the importer.

Trade financing is distinct that traditional financing or credit financing. General financing is utilized to handle cash flow or liquidity issues, but trade finance cannot essentially show a purchaser’s shortage of amounts or liquidity. Rather, trade finance in UAE can be utilized to secure against global trade’s remarkable innate hazards, like currency changes, problems with non-payment, political fluctuation, or the credibility of one of the groups included.