The Trade Cycle

Abstract

The importance of the trade cycle is described and how it provides the trade and receivables financier with a visual image of the proposed trade transaction. This enables the identification of the risks, funding gap and calculation of the credit facility requirement.

When evaluating a trade proposition, the formulation of the trade cycle timeline is a vitally important tool. As the trade cycle timeline is plotted, this will prompt questions and serve to identify risks for evaluation and the time flow of goods, documents and money. Critically, it will show the required length of credit exposure, represented by either drawn finance and/or the issuance of a liability-based product such as an import letter of credit.

The construction of the trade cycle timeline is shown and the method by which the credit facility amount is calculated.