Supporting the Middle-Party

Abstract

It is often necessary to provide trade finance facilities to a middle-party. A middle-party is not a producer or manufacturer and as a trader will often not take physical possession of the goods.

Whilst financing a middle-party with a thinly capitalised balance sheet presents a real challenge to the conventional financier, structured trade finance can be used to control the flow of documents, goods and monies to generate additional credit appetite and provide the required financial support.

The back to back letter of credit facility and transferable credit are described within this chapter. Whilst some banks avoid the use of back to back facilities, when well-structured they can provide risk mitigation, differentiate the financier in the marketplace and generate remunerative income.