Trade finance refers to the financing of the import and export of goods and services. It concerns both domestic and international trade transactions. A trade transaction requires both a seller and a buyer of goods and services. This trade may be financed by various intermediaries like banks and financial institutions. Intermediaries usually provide trade finance in the form of Letters of Credit (LOC), guarantees or insurance. Let us use an example. Suppose an exporter requires an importer to prepay for goods that the former ships. The importer would naturally want the risk reduced, by asking the exporter to document the shipped goods. This is when the importer's bank steps in, and provides a letter of credit to the exporter or the exporter's bank, providing for payment if certain documents like the bill of lading have been presented. The exporter's bank then may provide a loan to the former on the basis of an export contract. The kind of document used in this process depends upon the transaction's nature, and how the evidence of performance may be shown. Banks only deal with documents and not the actual goods or services to which the documents may be related to. Trade finance is useful when financing is needed by buyers and sellers for assistance with the trade cycle funding gap. Buyers and sellers may also choose to use trade finance to mitigate risk. For this to work, the financier usually needs control of the use of funds, control of the goods and the repayment source, visibility and monitoring over the trade cycle, and security over the receivables and goods. Trade finance helps settle the conflicting needs between the exporter and importer. The former wants to mitigate payment risks from the importer, and it would be in the exporter's benefit to quicken the receivables. The importer also wants to reduce the risk from the exporter, and it would be beneficial for the former to receive extended credit on their payment. Trade finance is a third party that removes the payment and supply risk, while providing the exporter with accelerated receivables, and giving the importer extended credit. The world of trade finance today is an exciting and dynamic one, evolved greatly and with multiple career options for graduates. Technology has completely revamped the way trade is carried out. For starters, digitisation has gotten rid of the immense paperwork. Trade finance has a global nature, and customers include the smallest enterprises as well as the largest institutions. Working in trade finance involves helping customers carry out more trade, thus helping them gain business leads. Trade finance professionals provide solutions ranging from bilateral facilities provided to customers, right up to large syndicated trade facilities that act as collateral for debt obligations. Working in trade finance requires a willingness to slog hard, and be motivated to learn and provide viable solutions and services to customers. This field requires you to constantly add value to the customers and the organisation that you work for, thus requiring time and patience. A typical day may be spent ensuring that the usual flow of client transactions isn't disrupted. A majority of the transaction processes are automated, and handled by a back-end operations team. The trade finance specialist intervenes to handle any exceptions or anomalies. The trade finance specialist also has to communicate with the client and troubleshoot on their behalf. In corporate banking, the transaction sizes are quite large, so even small delays can cause concerns. The trade finance manager has to clear bottlenecks, and make exceptions. The trade finance specialist has to expand the bank's trade business. This includes on-boarding new clients, or trying to get a bigger share of the spoils from existing clients. If your clients are global, expect a lot of international travel. Trade finance is a huge vertical and offers good career growth prospects. You can weave in and out of corporate banking roles, and if you are a specialist, even better. Trade finance specialists usually progress along the chain, and as they rack up experience, they are given bigger and more important clients. Thus, the revenue that you earn for the bank, increases. This also reflects in the compensation. As you grow, you will begin handling teams consisting of other trade finance specialists, and you may even go on to become regional, national or global trade finance head for your firm. In this field, you may also move from segment to segment. There are many trade finance specialists that begin by taking care of SME clients, where the product suite and client revenue is limited. As your experience increases you may move on to bigger client segments which needs a better product and regulatory understanding. It is when you start handling the big global clients, is where the revenue potential increases exponentially even if margins get squeezed. The more revenue you bring in, the more you get paid. The deals also get more complicated, and as a trade finance specialist you have to provide structured and bespoke solutions with plenty of opportunities to cross-sell currency derivatives, swaps, as well as other products. Large international organisations also have internal trade finance teams of their own, to help them with exports and imports. If you have a lot of experience with international trade, you may be of high value to them, and you can switch over to the client side. Working in trade finance also allows for opportunities for overseas work. Trade finance specialists deal with their counterparts in foreign countries, and have a wider chance to grab senior level positions globally. As a trade finance specialist, you have to combine relationship management with product knowledge. You can expect a decent work-life balance, and above average compensation when compared to other banking roles. There is high job security because of the demand for specialists in emerging markets, and the career growth is quick thanks to plenty of leadership opportunities. Moreover, this role is less quantitative than other banking roles. A great starting point for budding finance executives who want to get into corporate banking.
