Introduction to trade finance
Produced in partnership with Sullivan
Introduction to trade finance

The following Banking & Finance guidance note Produced in partnership with Sullivan provides comprehensive and up to date legal information covering:

  • Introduction to trade finance
  • Introduction
  • Letters of Credit
  • Issuing Bank
  • Advising Bank
  • Nominated Bank
  • Confirming Bank
  • Transferring Bank
  • Negotiating Bank
  • Acceptance credits
  • more


What is trade finance?

The term 'trade finance' is used to cover a number of different forms of financing and methods of payment, from secured syndicated financings to letters of credit. Broadly speaking, trade finance is used by buyers and sellers of goods internationally to provide credit support for the different stages of the sourcing, production and sale of commodities.

The term ‘trade finance’ covers structured and unstructured transactions. Structured transactions are where a borrower (usually a producer or seller of goods) receives a loan to finance the production/processing of the goods, or for cash flow purposes. This loan has some form(s) of security and structure of cash flows. A typical structure would result in the loan being repaid by the sale proceeds of the goods. Forms of structured trade finance include pre-export finance, prepayment finance, tolling, borrowing base financing, reserve base lending and warehouse finance.

See Practice Note: Structured trade finance for further details.

Unstructured trade finance is typically a way of financing trade (usually to assist with a borrower’s capital management), but without a secured loan facility. This Practice Note will consider the main 'unstructured' forms used for trade finance, namely, letters of credit, demand guarantees, bills of exchange, promissory notes and bank payment obligations (BPOs) and it will look briefly at how they are used in financing