Cross-Border Trade: Payment & Financing

In my prior article “Cross-Border Payments 101,” I discussed the movement of cash across borders. However, taking a step back, the whole process of trade — the flow of cash and goods together — has its own set of challenges.

Roughly 80% of trade transactions today are settled on open account terms, which is the simple exchange of payment. For example, wire, credit card, or check for goods, often involve the buyer or seller extending credit to his counter-party. That is cash in advance if the buyer is financing the seller, or delayed payment if the supplier is financing the buyer.

There are certain transactions where corporates want features not accomplished through an open account, such as the ability to transfer risk away from the transacting parties and/or obtain financing from external sources, such as banks.