Trade is one of the staples of the worldwide economy as it occurs on a large scale. This is why conducting trade is crucial for businesses, whether an importer or an exporter. However, when it comes to trade, there are certain risks associated with each party involved. Importers want a guarantee that they get their products, and exporters want a guarantee that they will get their payment. So how can they get such a guarantee to mitigate the risks they will be facing?
The answer is trade finance.
Trade finance can serve as a solution for all these problems and can help the businesses on both sides flourish. This article will talk about this extensive problem and cover everything you need to know about it. We will also discuss how we, Mwananchi Credit, can serve as the best trade finance partner. Without further delay, let’s dive in.
What is Trade Finance?
In essence, trade finance helps settle the conflicting needs of both the importer and the exporter. It serves as a third party by removing the risks involved. After all, so many things can go wrong, like the payment not being made, the goods not being shipped, the country politics restricting shipment, and the exchange rates being affected. It may be a little confusing to see how exactly they may affect each party, which is why we will put ourselves in the shoes of both the importer and the exporter.
What is the purpose of trade finance?
As an importer, you want to reduce the supply risk by asking the exporter to document the goods’ shipping. Therefore, trade finance from a lender or bank can help the importer by providing a letter of credit to the exporter or their bank regarding conditions for their payment and any other documents that require financing.
As an exporter, you want to reduce the payment risk by asking the importer to prepay for the goods. Therefore, trade finance from a lender or bank can help by providing them a loan for the export contract or any documents requiring financing. Exporters can also get credit and loans to get more substantial competitive power.
Now that you understand trade finance, it is time to look at the various trade finance options we provide and know what they are.
What trade finance options do you provide?
We provide a range of trade finance options for both importers and exporters. These are:
- Bid Bonds
- Performance bonds
- Advance payment guarantee
- LPO Financing
- Invoice Discounting
- Letters of credit.
What are Bid Bonds?
The purpose of a bid bond is to provide the bond owner with a guarantee that they will be compensated if the bidder fails to begin the project. These projects are usually for construction-related jobs but can be eligible for bid-based selection projects. In essence, a bid bond assures the owner that the bidder has the financial means to complete the project. Therefore, the bidder must have a percentage of the bid amount to be eligible for a bid bond, among other factors. Since it is a percentage, the amount could be significant, which can tie down the limited working capital of your business. This is why getting bid bond financing can be a great option.
Do you provide bid bond financing?
Yes, at Mwananchi Credit Ltd., we provide bid bond financing at excellent terms. For starters, we advance bid bonds within 30 minutes only to ensure the process is wrapped up for you as soon as possible with minimum hassle. Additionally, we do so without any cash cover or collateral. However, it would be best to keep in mind that this is a negotiated fee.
What are performance bonds?
The purpose of a performance bond is to guarantee the completion of a project with satisfactory performance after getting the bid accepted for it. Additionally, after awarding a contract, most companies will require the performance bond as a guarantee for security as part of the contract. Performance bond costs usually depend on several factors like credit history.
Do you provide performance bond financing?
Yes, at Mwananchi Credit Ltd., we provide you with performance bonds at excellent terms. We provide flexible payment terms for guarantee alongside flexible security or collateral. We strive to deliver for your satisfaction consistently, so we make sure for there to be a fast turnaround time. This ensures that you can fulfill your contractual obligations as fast as possible with minimal hassle. We are transparent with all costs, so you can rest assured that there will be no hidden costs.
What is an Advance Payment Guarantee?
An advance payment guarantee or APG, guarantees the importer that the exporter will return the payment if the contractual obligation to ship the products is not fulfilled. Therefore, an APG offers a legal way for security to the buyer. They ensure that the hard work and resources you have invested in your company are protected. Therefore, investing in the many types of APG is a great idea.
Do you provide APG financing?
Yes, we at Mwananchi Credit Ltd. provide APG financing for you on excellent terms. We provide flexible fee terms for guarantee. We can flexibly negotiate the security or collateral you will have to give. We strive for a fast turnaround time to have as minimal hassle as possible. We also make sure to deliver so that your satisfaction is guaranteed. We are entirely transparent about the fee structure to ensure no hidden costs that will surprise you.
What is LPO Financing?
LPO financing is a short-term loan that you can use to finance local purchase orders. Not all companies have cash ready to fulfill these LPOs once they are awarded. This is where LPO financing can come to save the day. They are short-term loans that can allow you to get the finances you need to fulfill your contract and help grow your business. Therefore, LPO financing can be a helpful financing option for your business.
Do you provide LPO financing?
Yes, we at Mwananchi Credit Ltd. provide short-term financing for LPOs. It should be a minimum of 30 days and a maximum of 90 days for LPO financing with us. We do financing at reasonable rates, but certain criteria have to be fulfilled. These requirements are:
- The original LPO contract
- Pro-forma invoices for the goods to be supplied
- Breakdown of costs involved
- Tangible security that must be in the form of a logbook or title deed
- Past invoices and delivery notes as evidence of similar past jobs.
What is Invoice Discounting?
Invoice discounting is quite simple. It is essentially a loan in which you get the money up to a certain percentage of the value of your outstanding customer invoices that have not been paid yet. If your customers have extended payment terms arranged with you, you will likely have to wait a while. Invoice discounting allows you to get the cash that you, otherwise, would have had to wait for. In this way, you can take care of any outstanding commitments quickly. Additionally, you can build working capital for your investments to ensure that your business operates smoothly and efficiently.
Do you provide invoice discounting?
We provide this short-term loan financing option by discounting 50% of the invoice amount supplied while waiting for payment. We work around your business situation to ensure a solution that fits your business requirements which is why the time of invoice discounting can vary. Ideally, we try to do this in a few days, but the speed will depend on how fast we obtain the information we need. However, it is essential to note that these invoices must be from reputable institutions. Additionally, other requirements need to be fulfilled. These are:
- Copy of the original invoice acknowledged by the procuring entity
- Delivery notes for the goods supplied
- Letters of assignment of the receivables executed by the procuring entity
- Latest bank statement for the business.
What is the invoice discounting arrangement process?
For starters, the process will begin once you contact us, which you can do online, and our customer service team will get in touch with you promptly. Alternatively, you can visit us at any of the Mwananchi Credit Ltd. branches that are available all around the country for your ease. After this initial contact, there will be a discussion with one of our specialists that will, of course, be kept confidential. Once you have gotten to know each other, we will arrange a face-to-face meeting to discuss details. This will be followed by an indicative offer to you that we will do after we understand your business requirements. After conducting a business review and consideration with our credit committee, we will make you a credit offer. Once you have decided to do business with us, we will arrange another meeting for you, after which you can send us your invoices, and we will release the funds for you so that you may use them for any commitments you have.
What are letters of credit?
Letters of credit are letters from a lending company or bank that guarantee to the seller that the buyer’s payment will be received on time and with the correct amount agreed upon. If the payment is not made, the bank or lending company will have to make the payment on the buyer’s behalf, which may be the total or remaining amount. Letters of credit are a crucial component of international trade due to differing laws that can hamper it. We here at Mwananchi Credit Ltd. offer letters of credit for anyone who may need them.
Who is eligible for trade finance?
Mwananchi Credit Ltd. provide trade finance for individuals who are involved in the following areas of categories:
- Service industry (Consultancy)
- Construction business (Engineers, contractors, etc.)
Does Mwananchi Credit Ltd. provide other forms of financing?
Yes, Mwananchi Credit Ltd. has been in the financing industry for many years, and we provide all sorts of options for financing your needs. Some of our most popular loan types are:
To sum up
There are various risks that both importers and exporters can face when it comes to trading. These risks can be related to political conditions, credit conditions, or risks related to supply and payment. It is only natural that these parties will want to protect themselves from these risks. This is where trade finance comes in, where banks and lending companies can serve as a third party to cover these risks by providing loans or documents. Depending on contractual requirements, you can or may have to take various trade finance options. Mwananchi Credit Ltd. delivers each of these with fantastic terms suitable for you. If you are eligible, then why not try out our trade finance options so that your business can come out on top. We promise that you won’t be disappointed!