Trade Finance Guide
Unlock the financial tools that power African exports. From letters of credit to forfaiting, learn how to finance your trade operations and manage risk.
Key Insight
80% of global trade relies on some form of trade finance. Yet Africa has a $120 billion trade finance gap. Understanding your options is essential for growth.
Trade Finance Instruments
Letters of Credit (LC)
Low RiskBank guarantee that payment will be made upon presentation of compliant documents.
High-value orders, new relationships
1-3% of transaction
5-10 days setup
Documentary Collections
Medium RiskBank acts as intermediary to exchange documents for payment (D/P or D/A).
Established relationships, medium risk
0.25-1% of transaction
Faster than LC
Export Factoring
Low RiskSell your receivables to a factor for immediate cash (typically 80-90% advance).
Cash flow needs, repeat buyers
1-5% per invoice
24-72 hours funding
Forfaiting
Very Low RiskSell medium/long-term receivables at a discount, usually with bank guarantee.
Capital goods, 180+ day terms
Discount rate varies
1-2 weeks setup
Export Credit Insurance
Insured RiskInsure against buyer non-payment due to commercial or political risks.
Open account sales, new markets
0.5-2% of invoice
Immediate coverage
Bank Guarantees
Low RiskBank guarantees performance, advance payment, or bid bonds.
Large contracts, tenders
1-3% annually
3-7 days
Financing at Each Export Stage
Pre-Shipment Financing
Finance needed to produce goods before export
Available Options
- Packing credit / Export working capital
- Pre-export financing
- Raw material financing
- Advance payment from buyer
Typical Terms
30-90 days, 60-80% of order value
Production Financing
Finance during manufacturing or processing
Available Options
- Working capital facilities
- Invoice financing
- Warehouse financing
- Contract financing
Typical Terms
Up to 180 days, against confirmed orders
Post-Shipment Financing
Finance after goods shipped but before payment received
Available Options
- Export bill discounting
- Negotiation under LC
- Post-shipment credit
- Factoring/forfaiting
Typical Terms
30-180 days, 80-100% of invoice
Payment Method Comparison
| Method | Security | Cost |
|---|---|---|
| Advance Payment | Highest (for seller) | None |
| Letter of Credit | Very High | 1-3% |
| Documentary Collection | Medium | 0.25-1% |
| Open Account + Insurance | Medium-High | 0.5-2% |
| Factoring | High | 1-5% |
Development Finance Institutions (DFIs)
DFIs provide critical trade finance support, especially where commercial banks are reluctant. They often offer better terms and longer tenors for African exporters.
African Export-Import Bank (Afreximbank)
Pan-AfricanIntra-African trade, commodity finance, factoring
African Development Bank (AfDB)
54 African countriesTrade finance programs, SME lending
International Finance Corporation (IFC)
Global (strong Africa presence)Private sector development, supply chain finance
Trade & Development Bank (TDB)
ESA regionEastern & Southern Africa trade finance
Africa Finance Corporation (AFC)
Pan-AfricanInfrastructure and industrial projects
Export Credit Insurance Providers
ATI (African Trade Insurance)
MultilateralPolitical & commercial risks
ECGC Egypt
ECAEgyptian exports
ECIC South Africa
ECASouth African exports
ICIEC (IsDB)
MultilateralIslamic trade finance
Afreximbank (AFRICOIN)
Pan-AfricanIntra-African trade
Private insurers (Coface, Euler Hermes)
CommercialGlobal coverage
Frequently Asked Questions
Key Takeaways
Match finance instrument to your risk tolerance and cash flow needs
DFIs offer better terms for African exporters than commercial banks
Export insurance can unlock open account sales
Factor costs into your pricing from the start