“The involvement and innovation of bank credit services have promoted the development of international trade finance services. In the early international trade activities, buyers and sellers were located in both countries, and the information was not smooth, and they may not trust each other. The buyer worried that after the advance payment, the seller did not comply with the contract. The seller also worried that the buyer would not pay after the shipment or the delivery of the shipping documents. In order to solve this problem, the bank credit service was introduced, and the two banks were required to act as guarantors of the buyers and sellers and to pay the bills on behalf of the bank credit. Instead of commercial credit, the tools used by banks in this activity are letters of credit. Zhou Hui, head of the supply chain financing team of the Bank of China’s Trade Finance Department, said at the 11th China International Credit and Risk Management Conference.
A letter of credit is a written document issued by a bank (issuing bank) to a third party (beneficiary) or its designated party in accordance with the requirements and instructions of the applicant, subject to the terms of the letter of credit, on the basis of the required documents. The emergence of letters of credit has been widely used in a long period of time, which has promoted the development of international trade. In order to make this tool more acceptable to all parties, the International Chamber of Commerce also develops and regularly revise the relevant rules, namely Uniform Customs and Practice for Documentary Credits (UCP). Zhou Hui said, “The trade financing products provided for the buyer or seller under the letter of credit are also innovative, especially based on the credit products accepted by the issuing bank for export export bills, Forfaiting. The financing business, such as the purchase of bills or bills, has a relatively low risk, which has greatly eased the financial pressure on exporters and promoted the development of China’s foreign trade exports.”
“With the development of the global economy and the increasingly fierce competition in international trade, the international trade buyer market has gradually formed. The proportion of letters of credit that protect the interests of exporters and the restrictions on importers has been declining year by year, and credit sales are becoming more and more popular.” The emblem pointed out that since the factoring business can well solve the problem of capital pressure and importer credit risk faced by exporters in the credit sales, it has developed rapidly in various countries and regions in Europe, America, Southeast Asia and other countries. At present, the use rate of letters of credit in international trade has dropped to 16%, and has fallen below 10% in developed countries. Credit sales (credit-based sales) have basically replaced the letter of credit as the mainstream settlement method. Under the credit sales trade, the management and financing needs of the company’s receivables are the basis for the development of factoring business.