Trade Finance
Trade Finance Products: The Full Menu for Importers and Exporters (2026)
From letters of credit and bank guarantees to factoring, invoice discounting, forfaiting and packing credit — here is the full trade finance product menu for importers and exporters, and how to choose the right one.
The trade finance product menu
Trade finance products divide into two families: instruments that move trust (letters of credit, bank guarantees) and instruments that move cash (factoring, invoice discounting, LC discounting, forfaiting, packing credit). Around them sit insurance and the payments layer.
| Product | Who uses it | What it does |
|---|---|---|
| Letter of credit (LC) | Importers & exporters | Bank promises to pay the exporter against compliant documents |
| Bank guarantee | Importers & exporters | Bank compensates a party if an obligation is breached |
| Packing credit | Exporters | Pre-shipment funding of production against a confirmed order |
| Factoring | Exporters | Sell export invoices for an advance; follows buyer country coverage |
| Invoice discounting | Exporters & MSMEs | Borrow against invoices; TReDS for MSME receivables |
| LC discounting | Exporters | Cash against a usance LC before maturity |
| Forfaiting | Exporters | Finance medium-term receivables for capital goods |
| Supply chain finance | Importers | Pay suppliers early, defer your own payment |
| Trade credit insurance | Exporters | ECGC covers buyer default and political risk |
Import-side products
As an importer, your financing need is the mirror of the exporter’s: reassure suppliers, defer payment, and manage your own cash.
- Letter of credit: the supplier’s bank sees a bank promise to pay, so the supplier ships without demanding advance payment.
- Bank guarantee: covers performance, advance payment and bid obligations, keeping your deposits out of the supplier’s hands.
- Import financing: bank credit against your import bills, letting you defer payment past the goods’ arrival.
- Supply chain finance (reverse factoring): a financier pays your supplier early at a rate linked to your credit — you repay later, and your suppliers never wait.
Export-side products
For exporters the goal is the opposite: get paid as early as possible without scaring away buyers with advance-payment demands.
- Packing credit: pre-shipment funding against a confirmed order — the backbone of export working capital.
- Factoring: sell the invoice after shipment for a 70–90% advance; availability follows the buyer country.
- Invoice discounting: borrow against your own receivables, often on TReDS for MSMEs.
- LC discounting: present the LC, get the cash, let the issuing bank pay at maturity.
- Forfaiting: sell medium-term receivables (180 days to years) for capital goods to a forfaiter.
- ECGC cover: insure the non-payment risk you cannot otherwise price.
The supporting layer: accounts, payments and FX
None of these products work without the plumbing: multi-currency accounts to hold the money, cross-border payments to move it, and FX to convert it at transparent rates. For many businesses the first bottleneck is not financing — it is a payment that takes ten days to arrive or an FX quote that eats the margin.
How to choose: a decision map
- Pre-shipment need → packing credit.
- Post-shipment, buyer on open account → factoring or invoice discounting (check country coverage).
- Post-shipment, buyer on LC → LC discounting.
- Medium-term capital goods export → forfaiting.
- Uninsured buyer risk → ECGC cover on top of the financing.
- Import payment timing → LC, bank guarantee, import financing or supply chain finance.
From the menu to the platform
The products only help if you can actually use them per deal. The buyer financing checker tells you which financing products exist for your buyer’s market, and a platform like trad combines the accounts, payments, FX and financing around the deal — so the menu becomes a single workflow instead of five separate desks.
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Open the financing checkerFrequently asked questions
What are the main trade finance products?
The core products are letters of credit, bank guarantees, factoring, invoice discounting, LC discounting, forfaiting, packing credit and supply chain finance — with trade credit insurance (ECGC), multi-currency accounts, cross-border payments and FX as the supporting layer.
Which trade finance product should an importer use?
Importers use letters of credit and bank guarantees to reassure suppliers, import financing to defer payment, and supply chain finance (reverse factoring) to pay suppliers early while stretching their own working capital.
Which trade finance product should an exporter use?
Before shipment, packing credit funds production. After shipment, factoring or invoice discounting converts invoices into cash; LC discounting does the same for LC deals; forfaiting covers medium-term receivables. ECGC insurance covers the risk of non-payment.
What is the difference between factoring and forfaiting?
Factoring finances short-term export receivables (60–120 days), usually without recourse against the buyer, and follows the buyer country’s coverage. Forfaiting finances medium-term receivables (180 days to several years), typically for capital goods, by selling the exporter’s claim — often covered by a bank’s guarantee — to a forfaiter at a discount.
What is the difference between an LC and a bank guarantee?
A letter of credit is a bank’s promise to pay the exporter against documents proving shipment — it is the payment itself. A bank guarantee is a promise to compensate a party if the other side breaches an obligation, such as performance or advance payment — it is a safety net, not the primary payment mechanism.
How do I choose between trade finance products?
Match the product to the stage and the buyer. Pre-shipment → packing credit. Post-shipment on open account → factoring or invoice discounting if the buyer country supports it. Post-shipment on LC → LC discounting. Medium-term capital exports → forfaiting. Unbanked risk → ECGC cover.
Can I combine trade finance products?
Yes — that is how real export desks run. Hold an ECGC policy for insurance, fund production with packing credit, and factor the invoices or discount the LCs for speed. Platforms like trad combine the financing with accounts, payments and FX in one place.
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