5 Key Financial Instruments that Help Facilitate International Commodity Trading

Commodity trading between two countries paves the way of the foundation for economic growth and prosperity. However, the biggest impediments to international trading are payment guarantee and delivery of goods according to the terms & conditions mentioned in the agreement. To facilitate streamlined fast and efficient global trading, banking institutions provide a wide range of financial instruments.

For instance, SUISSE COMMODITY is an international trading company that acts as an organizer of the value chain. It functions under the same corporate group as Suisse Bank, a reputable offshore banking institution that offers international trade financing solutions – streamlining the entire operation. Trade is facilitated through financial instruments, designed to provide payment guarantee and goods delivery assurance to partners for trading.

Read this article to know how you can facilitate the trading process and achieve success with five major financial instruments.

1.Standby Letter of Credit: Under standby letter of credit, the bank or financial institution such as SUISSE BANK makes an undertaking that, if the client (importer or buyer) is unable to fulfil certain contractual obligations, then the bank will make payment to the beneficiary (exporter, trader or supplier) on behalf of the client.

Through SBLC, the bank guarantees that, even if the client is not able to make payment for any reason whatsoever, becomes insolvent or ceases operations, all conditions and obligations of the trading agreement will still be fulfilled. This financial instrument is designed to protect the interest of the exporter through payment guaranteed and also ensures timely delivery of goods to the importer even if the business defaults.

2. Bank Guarantee: Often, exporters or suppliers involved in trade demand a guarantee for payment in some form. This ensures them peace of mind that even if the importer fails to make the payment, the obligations will still be fulfilled by a bank or financial institution. This undertaking is called a Bank Guarantee, wherein the bank will make the payment to the beneficiary on behalf of the importer.

Many businesses will not trade with you unless there is a Bank Guarantee from a reputable bank, financial institution or trading partner like Suisse Commodity. The most popular types of guarantees being used today are Payment Guarantee, Advance Payment Guarantee, Tender Guarantee and Performance Bond.

1. Documentary Letter of Credit: To protect the interests of the buyer or importer, banks such as SUISSE BANK provides a documentary letter of credit. Under this mechanism, the bank promises to make payment to the beneficiary only when certain trade conditions are fulfilled by the exporter or supplier. This may involve the delivery of goods as per the agreement.
2. Proof of Funds: A POF validates that the trader or investor has the capital and financial resources necessary for a particular trading transaction or investment. The objective is to ensure that payment will be done as per the trading or investment conditions.
3. Warranty: Also known as aval, it is an undertaking by the bank or financial institute to make payment to the beneficiary if a particular event between the trading partners arises.

To learn more about how you can streamline trading through financial instruments, get in touch with your trading partner.

SUISSE COMMODITY is located in Sharjah, 70 km from Jebel Ali Port, Dubai. Its core objects are import and export on the commodity market, including primary materials / primary products, food and non-food.