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Trade Finance

Guide

A Quick Reference for U.S. Exporters

Trade Finance Guide: A Quick Reference for U.S. Exporters is designed to help U.S. companies, especially small and medium-sized enterprises, learn the basic fundamentals of trade finance so that they can turn their export opportunities into actual sales and achieve the ultimate goal of getting paid–especially on time–for thosesales. Concise, two-page chapters offer the basics of numerous financing techniques, from open accounts, to forfaiting to government assisted foreign buyer financing.

TRADE FINANCE GUIDE

Table of Contents
Introduction .. .................................................................................. . 1
Chapter 1: Chapter 2: Chapter 3: Chapter 4: Chapter 5: Chapter 6: Chapter 7:Methods of Payment in International Trade .... ..................... . 3
Cash-in-Advance... ............................................................... 5
Letters of Credit.... .............................................................. . 7
Documentary Collections... ................................................. . 9
Open Account .................................................................. .. 11
Export Working Capital Financing .... ................................ .. .13
Government-Guaranteed Export Working Capital
Loan Programs . ....................................................... ........ .. .15
Export Credit Insurance .... ............................................... .. .17
Export Factoring............................................................... .. 19

Chapter 8: Chapter 9:

Chapter 10: Forfaiting .... .................................................................... .. .21
Chapter 11: Government-Assisted Foreign Buyer Financing... ................ . 23
Chapter 12: Foreign Exchange Risk Mangement..... .............................. . 25

Published April 2008

TRADE FINANCE GUIDE

Introduction Opportunities,Risks, and Trade Finance

1

W

elcome to the second edition of the Trade Finance Guide: A Quick Reference for U.S. Exporters. This guide is designed to help U.S. companies, especially small and medium-sized enterprises (SMEs), learn the basic fundamentals of trade finance so that they can turn their export opportunities into actual sales and achieve the ultimate goal of getting paid—especiallyon time—for those sales. This guide provides general information about common techniques of export financing. Accordingly, you are advised to assess each technique in light of specific situations or needs. This A Quick GlAnce edition includes a new chapter on foreign exchange risk management. The Trade Finance Guide will be revised Trade Finance Guide and updated as needed. Future editions mayinclude new A concise, simple, and easy-to-understand guide chapters that discuss other trade finance techniques and for trade finance that is designed especially for U.S. related topics. small and medium-sized exporters.

Benefits of Exporting
The United States is the world’s largest exporter, with $1.5 trillion in goods and services exported annually. In 2006, the United States was the topexporter of services and second largest exporter of goods, behind only Germany. However, 95 percent of the world’s consumers live outside of the United States. So if you are selling only domestically, you are reaching just a small share of potential customers. Exporting enables SMEs to diversify their portfolios and insulates them against periods of slower growth in the domestic economy. Free tradeagreements have opened in numerous markets including Australia, Canada, Chile, Israel, Jordan, Mexico, and Singapore, as well as Central America. Free trade agreements cre­ ate more opportunities for U.S. businesses. The Trade Finance Guide is designed to provide U.S. SMEs with the knowledge necessary to grow and become competitive in foreign markets.

Trade Finance
A means to turn export...