Trade finance can take many different forms. These include:

a) ‘Open account’ transactions: these are transactions where the buyer makes a payment once they have received the goods. These are the most common means of financing trade, but the underlying trade-related nature of the transaction will often not be known to the banks executing the fund transfer. Banks should refer to the guidance in Title I to manage the risk associated with such transactions.

b) Documentary letters of credit (LCs) that have many variations and are suited to a different situation respectively: an LC is a financial instrument issued by a bank that guarantees payment to a named beneficiary (typically an exporter) upon presentation of certain ‘complying’ documents specified in the credit terms (e.g. evidence that goods have been dispatched).

c) Documentary bills for collection (BCs): a BC refers to a process by which payment, or an accepted draft, is collected by a ‘collecting’ bank from an importer of goods for onward payment to the exporter. The collecting bank gives the relevant trade documentation (which will have been received from the exporter, normally through their bank) to the importer in return.