Traditional Trade Finance vs. Supply Chain Finance

The WTO estimates that 80-90% of the global trade depends on Trade Finance. It's one of the most complex business fields in the financial sector, which provides finance, payment and risk mitigation for trading partners. Nowadays, as global trade becomes more sophisticated, successfully managing trade and supply chains has never been more critical (HSBC, 2016). In response to new challenges, leading institutions provide parties with Traditional Trade Finance and increasingly popular Supply Chain Finance solutions. Managers at the supplier and buyer companies have to decide whether to utilise intermediaries and which of the techniques to use. Previous research considered that choice between well-known Open account, Cash in advance and Letter of credit. This work expands that choice among 15 existing techniques. The main result is the developed "Trade and Supply Chain Finance choice model" which gives a theoretical framework and practical application for trading partners and bank's experts to make the optimal choice. An additional result is the classification of Trade Finance from different points of view. Furthermore, this work answers the question why SCF is becoming more popular.

Autorentext

Alexander Malygin, MBA at University of Essex (UK), BSc Economics, CDCS®. Certified Trade Finance Chief Specialist at International Bank; dealing with Documentary Credits (Letters of Credit), Documentary Collections, Guarantees, Standby and other evolving Supply Chain Finance products.