🌍 Trade & Supply Chain Finance

What it is: A Letter of Credit (LC) is a commitment by a bank (the issuing bank) to pay the beneficiary (exporter) provided the exporter presents documentary evidence meeting the terms specified in the LC.

Parties involved: Applicant (buyer/importer), Issuing Bank, Beneficiary (seller/exporter), Advising Bank, Confirming Bank (optional), Negotiating Bank.

Types of LCs

• Irrevocable vs Revocable: Irrevocable LCs cannot be changed without agreement of all parties — nearly all modern LCs are irrevocable.
• Confirmed LC: A confirming bank adds its own commitment — used when exporter needs additional security because of issuing bank or country risk.
• Sight vs Usance: Sight LCs require immediate payment upon presentation of compliant documents; Usance (term) LCs allow deferred payment.
• Transferable LC: Can be transferred from the beneficiary to a third party (useful for intermediaries).
• Standby LC: Functions more as a guarantee — pays only if the applicant fails to perform.

Typical Process — Step by Step

1. Buyer and seller sign a sales contract specifying LC terms.
2. Buyer applies to NoMoMFB to issue an LC in favour of the seller.
3. NoMoMFB (issuing bank) issues the LC and advises it through the advising/confirming bank.
4. Exporter prepares goods and ships as per LC terms.
5. Exporter presents required documents (invoice, bill of lading, insurance, certificate of origin, packing list, etc.) to bank.
6. Bank examines documents for strict compliance. If compliant, payment/acceptance is made per LC terms.
7. If documents are discrepant, the bank seeks waiver or rejects the documents — risk mitigation and communication follow.

Common Documents

Commercial invoice, full set of negotiable Bill of Lading or Airway Bill, insurance certificate, packing list, certificate of origin, inspection certificates, phytosanitary or quality certificates where applicable.

Costs & Timelines

Costs vary by transaction size, risk, and whether confirmation is added. Typical fees include issuance fee (0.25%–1% of LC amount), confirmation fee (if confirming bank used), negotiation/discounting fees if exporter draws early. Issuance times: LCs can be issued in 1–3 business days after documentation; negotiation and document examination occur upon presentation (days).

Practical Example

Importer orders goods worth $200,000. NoMoMFB issues an irrevocable LC. Issuance fee ~0.5% = $1,000. Exporter ships, presents documents, and receives payment per LC. If exporter requires immediate payment, NoMoMFB can negotiate/discount the LC for a fee.

How NoMoMFB Enhances LCs

• Digital application and document upload to reduce manual errors.
• Real‑time status updates in your dashboard.
• Option for confirmation when dealing with higher country or issuing bank risk.
• Support for partial shipments and transferable LCs per agreement.

Overview: Financing bridges the timing gap between paying suppliers and receiving revenue from buyers. NoMoMFB provides multiple structures to suit transaction profiles.

Pre-Shipment (Working Capital / Purchase Order) Finance

Used by importers to fund supplier orders or by exporters to finance manufacturing and packing. Instruments include purchase order finance and packing credit. Collateral may be inventory, assignment of receivables, or LCs.

Post-Shipment (Receivables) Finance

Includes invoice discounting, factoring (with or without recourse), and forfaiting (often used for medium‑to‑long term receivables). Exporters can convert receivables into cash quickly.

Key Commercial Terms

• Tenor: Short-term (30–180 days) typical; forfaiting for longer tenors.
• Pricing: Benchmark rate (e.g., SOFR / LIBOR proxy) + margin (typically 2%–6% depending on credit & collateral).
• Fees: Arrangement fee, commitment fee, drawdown fee, and early repayment fees.

Collateral & Credit Considerations

NoMoMFB evaluates borrower credit, buyer/obligor credit (in the case of receivables finance), trade documentation, and may take security over inventory, receivables, or an assignment of proceeds. LC-backed facilities often command lower margins.

Process Flow

1. Apply & submit trade documents (PO, pro forma invoice, supplier quotes).
2. Underwriting & credit assessment — evaluates borrower & trade counterparty.
3. Facility offer: terms, tenor, pricing, collateral.
4. Funding: advance against invoices, or direct payment to supplier under import finance.
5. Repayment: from proceeds of sale or maturity of receivable.

Use Cases & Examples

Importer example: Importer needs $50,000 for inventory. NoMoMFB provides a 90‑day pre‑shipment finance facility at benchmark + 3%.

Exporter example: Exporter ships goods on 90‑day buyer credit. NoMoMFB discounts the invoice at a fee so exporter receives cash immediately.

Integration with LCs & SCF

LCS can underpin finance (LC-backed lending). For Supply Chain Finance, buyers’ creditworthiness reduces financing cost passed to suppliers.

What is SCF? Buyer-led financing where the buyer facilitates early payment to suppliers via a financing partner. Suppliers receive early payment (at a discount), while buyers extend payment terms to improve working capital.

How Reverse Factoring Works

1. Buyer and finance provider (NoMoMFB) set up an SCF program.
2. Supplier delivers goods and submits invoices to buyer for approval.
3. Once buyer approves, supplier elects early payment; NoMoMFB pays the supplier (less a financing fee).
4. Buyer pays NoMoMFB on the original invoice due date (extended terms).

Benefits

• For buyers: Improve DPO (days payables outstanding) without harming suppliers.
• For suppliers: Lower-cost access to early liquidity, often at rates tied to buyer credit quality.
• For the chain: Greater stability, fewer defaults, better supplier relationships.

Implementation & Tech

NoMoMFB offers an integrated platform to onboard suppliers, present invoices, approve payables, and execute early payments. APIs allow ERP/invoicing systems to integrate for automated workflows and reconciliation.

Example

Buyer has $1,000,000 in supplier payables. Suppliers opt to get paid immediately at a discount rate of 1.5% (annualised equivalent pro rata). Buyer pays NoMoMFB after 60 days. The program improves buyer cash conversion while suppliers access working capital.

What it is: Documentary collection is a bank-mediated transfer of shipping documents. The buyer receives documents from their bank only after payment (D/P) or acceptance (D/A).

D/P vs D/A

D/P (Documents against Payment): Buyer receives shipping documents only after paying. Safer for exporters.

D/A (Documents against Acceptance): Buyer accepts a bill of exchange and promises to pay at a later date — used when trust is higher.

Pros & Cons

• Lower cost than LCs but offers less security.
• Quicker to set up but relies more on buyer cooperation.

Common types: Performance guarantees, bid guarantees, advance payment guarantees, and payment guarantees. Banks commit to pay a beneficiary if the applicant fails to meet obligations.

Process & Costs

Issuance requires credit assessment. Fees vary (e.g. 0.5%–2% annually of guarantee amount depending on risk). Claims are paid upon presentation of a conforming demand as per guarantee terms.

Why hedge? To protect margins from currency volatility when you have payable/receivable exposure in foreign currency.

Common instruments

• Forwards: Contract to buy/sell currency at a future date and fixed rate.
• Options: Right (not obligation) to exchange at a strike — useful for asymmetric protection.
• Limit Orders: Execute conversion when a target rate is reached.

NoMoMFB helps structure simple hedges for SMEs as well as bespoke solutions for larger corporates.

These are example ranges to help you model costs. Actual pricing depends on counterparty credit, country risk, transaction size and collateral.

• LC Issuance: 0.25% – 1.0% of LC amount
• Confirmation fee (if required): 0.2% – 0.8%
• Documentary collection fee: $50 – $200 per transaction
• Import/export financing margin: benchmark + 2% – 4%
• Supply Chain Finance (discount rate): 1.0% – 3% depending on buyer credit

Example: For a $200,000 LC with a 0.5% issuance fee and 0.3% confirmation fee -> issuance $1,000 + confirmation $600 = $1,600 total (excluding negotiating/handling charges).

Follow these steps to apply for trade finance:

1. Create a NoMoMFB business account (online signup).
2. Complete KYC: company registration, UBOs, IDs for directors/owners, proof of address.
3. Provide trade documents: commercial invoice, purchase order, sales contract, pro‑forma invoice, or LC draft.
4. Submit financials & bank statements for credit assessment.
5. NoMoMFB underwrites & issues facility terms.
6. Sign facility agreement, upload documents, and transact.

Typical onboarding time: 3–10 business days depending on complexity and sanctions screening. LC issuance or documentary facilities can be arranged faster when supporting documents are complete.