Trade finance is the financial instrument techniques which are applied by the business organisations for business and trading. It includes the financial instruments which the financial institutions use to do business transactions on a day to day basis.
In this article, we discuss the methods of payment used in trade finance in the UAE. The most common methods of doing business trade are letter of credit, cash in advance, documentary collection, factoring and others. Facilities such as charge cards, collection agencies, credit ratings and others are used in the country. Data on foreign exchange controls, banking system and US banks and local banks data are applied.
If a business entity or any country which wants to trade with the UAE are not familiar with the banking practises then it becomes difficult for them to do business. The recovery of payments is very difficult and sometimes it takes many months to clear the payment.
Trade finance is very common in the UAE. Many international banks and local banks provide the services to the small and medium businesses. It provides them the facility to do trading with the local and international market. The most common methods of payment are the Commercial letter of credit which are used most preferably in the UAE.
Letter of credit is the most common form of payment and within that the most usual types of Letter of credit are on sight payment, deferred payment, revolving payment, provision of commercial trading law.
Click here for Letter of credit in the UAE
The provisions related to the commercial transaction law are complementary to the parties. In the absence of any clear indication, the Letter of credit is considered irrevocable in contrast to the global standard.
For any transactions, the most common form of payments are the cheques and in the UAE the large amount of payments are made through the cheques. On the cheques, the Image cheques clearing system has a cheques processing system which was introduced in the year 2008. The bounced cheques are subject to criminal offense and are liable for punishment.
Electronic funds transfer are the most commonly used methods in the UAE. The ‘central bank operates’ the UAE fund transfer system. It is the Real time gross settlement method which provides services in retail and big ticket payments. To minimise the risk and also to reduce the errors in international trade International bank account numbers systems are widely used in the UAE.
The Dirham is the official currency in the UAE. There will be stability and confidence in the currency and the interest rates keep changing. There are no restrictions on the currency in the UAE and they are convertible offshore and onshore bank accounts.
Click here to know All about trade license in the UAE
The securities and commodities are governed by the SCA (Securities and Commodities Authority). The securities and commodities traded in the free zones are not governed by the SCA. The Dubai International financial centre is a free zone that works under the regulatory authority of Dubai Financial services authority.
Trade finance banks
Below are the banks in the UAE that offer trade finance facilities. Some of the key features and advantages have been listed below.
1. Commercial bank of Dubai Trade Finance Services
- Import & Export Letter of Credits
- Short term import financing
- Export letter of credit
- Tasdeer Export Finance against LCs
- Invoice factoring & Guarantee
- Shipping & Delivery orders
- Spot and Forward Foreign exchange contracts
- Swift payment contracts
- Financial guarantees
2. ADCB Islamic Banking Trade Finance Services
- Documentary Credit- Imports
- Documentary Credit- Exports
- Working Capital Solutions
- Import collection
- Import Letter of Credit
- Trust Receipts
- Shipping Guarantees
3. First Abu Dhabi Bank Trade Finance
- Letter of credit advising and confirmation
- Letter of credit negotiation and discounting
- Pre-shipment financing
- Buyers credit
- Import bill collection
- Shipping guarantee
- Bid bonds
- Advance payment bonds
- Retention bonds
- Maintenance bonds
4. Emirates Islamic Bank Trade Finance
- Import & Export services
- Smart trade
- Bills for collection
- Import finance
- Structured letter of credit
- Tender Bond
- Performance bond
- Counter and Maintenance guarantee
- Financial and Payment guarantee
5. Emirates NBD Trade Finance
- Issuance of Irrevocable letter of Credit
- Documentary Credit
- Issuance of guarantee
- Export collection
- Indemnity for purchase or discounting of bills
- Smart trade
- Trade finance emails and auto SMS notifications services