Trade finance instruments are essential lubricants for international trade. They not only facilitate payment but also, equally important, mitigate the various risks involved in transactions across borders.
For Swiss industry, heavily reliant on exports, it is of paramount importance to have access to efficient and robust trade finance options that work to the advantage of both the exporting company and the buyer.
“There are several different trade finance instruments. They primarily serve three functions – to help create financing solutions for the buyer, to mitigate non-performance of the seller and to mitigate the risk of non-payment in order to protect the exporter. All are equally important and, in the end, they are often what actually closes the deal,” says Claude Lauper, Board Member of swiss export and Head of Trade and Export Finance at Zürcher Kantonalbank.
Distinction between risks
For the aspect of non-payment risks there is a distinction between country risk (political and transfer risk, respectively) and buyers risk, Claude Lauper points out. “Some markets pose challenges in both these aspects, others, such as for instance Brazil, pose less country risk, but considerable buyers risk due to the difficult economic situation the country is facing currently.”
Banks offer a wide variety of trade finance instruments, ranging from traditional letters of credit to supply chain finance and currency hedging. Stretching payment terms up to a year or more is also a way to help facilitate a deal. In very high-risk markets, where private banks may not be able to provide risk mitigation, SERV may be able to offer solutions. Claude Lauper also recommends Swiss enterprises to take full advantage of the expertise at the chambers of commerce and swiss export, both of which offer valuable knowledge and networks.