Trade finance instrument by which the risk of non-payment or non-performance under underlying contract is mitigated.

Advantages:

• Mitigation of non-payment or non-performance risk without the need to deposit money as security
• Increased trust between parties of a trade deal;
• Bank guarantees allow parties to agree on deferred payment conditions (trade credit);
• Application of uniform world standard when using demand guarantees;

Parameters:

The bank guarantee is a credit deal in which the applicant instructs the bank to issue a guarantee in favour of the beneficiary;

The main types of guarantees are: payment guarantee, performance guarantee, advance payment guarantee, tender guarantee;

Scheme bank guarantees

Trade finance instrument by which payment is made in a trade deal, while mitigating the risk of the buyer to receive goods of bad quality and the risk of the seller of non-payment.

Advantages:

• Letters of credit allow inclusion of many different conditions for mitigating the risk in the trade deal
• Letters of credit allow parties to agree on deferred payment conditions (trade credit)
• Letters of credit can be used for post-shipment finance
• Application of uniform world standard when using Letters of credit

Parameters:

The letter of credit is a credit deal in which the applicant instructs the bank to issue a letter of credit in favour of the beneficiary

The letters of credit may be payable at sight or at deferred payment conditions against presentation of required by the credit shipping documents

Scheme letters of credit

Trade finance instrument by which payment is made in an international trade deal, while mitigating the risk of the buyer and the seller.

Advantages:

• Documentary collections provide security to the seller that the buyer will not get the goods before having paid to the seller
• Documentary collections provide security to the buyer that the goods have been loaded and travel to the place of destination as agreed in the underlying contract
• Documentary collections are handled fast by the banks and at a competitive price 
• Application of uniform world standard when using documentary collections

Parameters:

Banks usually do not lend credit when handling documentary collections but transmit, keep and deliver shipping documents related to international trade deals.

Scheme documentary collections