Export finance and trade are interdependent, as export financing options make international sales transactions possible while reducing risk for both parties. Without such options, small businesses and start-ups would be excluded from international trade. Export financing also acts as a competitive barometer and ensures efficiency in the marketplace.
Trade and export finance work hand in hand, as export finance makes international sales transactions possible at a level of risk acceptable to both the importer and exporter. Without export financing, international sales transactions would place an unacceptable risk burden on one party to the transaction or the other, hampering the economic growth that both countries would experience as a result of expanding markets. The development of export financing options has supported the globalization of international markets that has been the hallmark of the 21st century and the age of technology.
International trade is an important part of a country’s economy. One of the key indicators of the strength of a country’s economy compared to another is its level of imports to exports. Sales transactions between buyers and sellers located in different countries are often complicated by the distance goods need to travel before a buyer can take possession and the differences in financial markets and political and economic stability between countries that can prevent timely payment to the seller.
Without third-party export financing options, international trade would belong solely to large corporations. These larger groups have the capacity to absorb the risks involved and are better able to finance their own receivables. Small businesses and start-ups with no established credit would be excluded.
The relationship between trade and export financing is marked by interdependence. Export financing includes third-party programs from government agencies, development banks, export credit agencies, and other multinational agencies that help small businesses and other sellers finance the inventory needed to conduct international sales transactions. It also includes intermediary services provided by issuing banks and advisers that extend letters of credit, open accounts and loans to reduce the risks involved in sales transactions. These export financing options make trade possible, but they also carry costs that drive international financing. Importers, exporters, economies, and financial markets benefit from the interdependence of export trade and finance.
Export finance also acts as a competitive barometer that distinguishes quality providers from competitors. The availability of financing options that allow sellers to extend credit terms to buyers, or guaranteed payment agreements that allow buyers to assure sellers that they will be paid on demand, are competitive advantages that parties they can use to block opportunities and markets. Trade and export finance work together to ensure that qualified and trustworthy companies interact in the marketplace in a way that mitigates risk, ensures efficiency, and decreases transaction time.
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