With a wide range of trade finance instruments available in the market designed to cater to different needs of businesses, each has its key role in serving a form of guarantee required in international trade transactions. From mitigating risks to instilling trust and confidence between the parties involved, the role of trade finance instruments is much beyond that.
From a Standby Letter of Credit that acts as a safety net gives a guarantee to the beneficiary on behalf of the client and assures payment will be made to the beneficiary in case of any default, To a Documentary Letter of Credit that ensures payment will be made upon demonstration of required documents, to Bank Guarantee that gives a promise on clients behalf to the beneficiary that the client will fulfill their contractual obligations.
Comprehending the role of trade finance instruments can be overwhelming, especially with such minor differences between them.
To understand it better Yield 4 Finance is here to debunk some common myths that revolve around the role and importance of these trade finance instruments.
Myth 1 – It is often predicted that SBLC and DLC are one and the same
However, this is not true. While both of them serve the same purpose of providing payment guarantees they are not the same. SBLC is a form of safety net for the beneficiary that gives an assurance that the payment will be made to the beneficiary in case of any default on the buyer’s end.
On the other hand, when it comes to the payment guarantee provided by DLC it assures that the payment will be made only when the terms of the contract are met. DLC involves the presentation of the documents necessary for getting the payment.
Myth 2 – Trade finance instruments are only required for international trade purposes only
Trade finance instruments are most commonly used for international trade and transactions however their role is not just limited to that and extends beyond that to domestic transactions too. So whether a payment security is required across the border or within the borders these trade finance instruments can be used for all your trade transactions needed anywhere in the world.
Myth 3 – Obtaining trade finance instruments is time-consuming and can slow down the transaction process
With advancements in technology and digital banking, the process of issuing trade finance tools has become a streamlined process that can be obtained with ease through trade finance companies like Yield 4 Finance which provide quick and efficient services for your business needs with their years of experience and expertise along with their tailored services.
Myth 4 – Bank guarantee is of benefit only for the beneficiary
A Bank guarantee is beneficial for both the parties involved in the transactions. For the applicant bank guarantee helps in enhancing the credibility of the applicant and this elevates the trust and confidence further fostering secure deals and potential opportunities in the future.
Meanwhile not only this but the beneficiary also gets a layer of security and comfort with the assurance that they will get the payment if the applicant defaults or fails to meet the contractual obligations.
Yield 4 Finance: Leading the Way in Global Trade Finance Solutions
It is crucial to understand the trade finance instruments and the importance they hold in trade transactions be they international or domestic. With the right understanding you can leverage benefits by choosing the right trade finance tools for your business needs and with the right partner like Yield 4 Finance, you can streamline your business operations and navigate the complexities of trade finance with ease.