DEFINITION OF TRADE
Trade business is the buying and selling of goods and Services. Trade Finance at dfcu Bank is a form of negotiated working capital, or documentary support we provide to our clients in the trade and service industry respectively.
Our products are short term facilities in nature, not exceeding 12 months with the option of renewing them on expiry.
At dfcu Bank we know that clients have various / different financing needs, we therefore avail and structure products to suit that type of customer, and sector in which they operate on a case by case basis.
Known parties in trade include the following:
- Importer – buyer
- Exporter – seller
- Agents – for clearing, insurance, transport etc.
- Correspondent banks
LETTERS OF CREDIT/DOCUMENTARY CREDITS
A letter of credit is a document that gives the importer and exporter comfort that the entire transaction will be executed without any flaws, and guarantees payment to the exporter; especially in situations where both parties have little knowledge or trust amongst themselves.
Types of Letters of Credit
- Irrevocable credit
- Revolving Credit
- Confirmed Credit
- Transferable Credit
- Back to Back Credit
- Standby Credit
- Revocable Credit
Benefits of Using Letters of Credit
a) The ability to structure the payment plan in the contract based on the importer’s cash flows. In other words, this payment method provides a leveled ground for negotiating payment terms.
b) There is comfort that the goods paid for will be delivered, or that there will not be losses in the event of failure to receive the goods.
c) Assurance that the bank can only make payments when the terms in the Letter of Credit are complied with.
d) Frees the importers cash flows,
e) It’s the cheapest mode of financing, because it eliminates interest.
f) There is also an option of negotiating an import loan with the bank, where DFCU pays the supplier and converts the LC into a loan, to suit your cash flows.
g) These documents are more secure than purchase against cash up front.
a) Guaranteed payment upon presentation of the documents specified in the terms of the letter of credit.
b) Letters of Credit can be discounted to provide working capital during the production stage.
c) Letters of credit are confirmed with A rated Banks to provide extra comfort.
A documentary collection is proof to the exporter that the bank will collect their payments as soon as the transfer documents for goods are received.
The exporter therefore maintains control over the consignmentuntil payment is effected or financial documents accepted.
This instrument is most suited when;
- Both the exporter and importer are of a good credit rating.
- Documentary collections are governed by Uniforms Rules for Collection (URC 522) published by the International Chamber Of Commerce (ICC), which minimizes risk of failure to comply.
Types of Collections
1. Documents against Payment (D/P)
2. Documents against Acceptance (D/A)
3. Acceptance documents against payment
BONDS, INDEMNITY & GUARANTEES (BIGs)
BIGs are securities from the bank to the employer indicating that should the service provider / contractor fail to meet the agreed and contractual terms & conditions, the bank will cover the losses up to the limits agreed in the contract.
Such bonds and guarantees are specific to target clients including, contractors, distributors, buyers of commodities and other products, these include but not limited to the following;
- Performance Bond
- Retention Bond
- Advance payment Bond
- Bid Bond
- Stand-by letters of credit (SBLCs) – payment guarantees in an internationally recognized format.
STRUCTURED TRADE FINANCE/WAREHOUSE RECEIPT SYSTEM
This type of financing is commonly referred to as warehouse receipt system because of the structure of the transaction. Whereas there are different goods that can be financed under this product, the most commonly financed are for clients that deal in both hard and soft commodities. Whether imported or procured locally, dfcu Bank can still finance those commodities under this structure to best suit the borrower’s needs.
Our trade finance products are available to both companies and individual and are not limiting on the product. However, it’s important to note that this product invites the services of a Collateral Manager, where the Bank refinances Warehouse receipts at an agreed percentage of the value of the Warehouse receipt.
To find out more about dfcu Trade Finance, visit your nearest dfcu branch or call us on 0800 203 019/ 0312 300 200 or Email: ClientServices@dfcugroup.com