What are trade services designed to do?

Trade services are specifically designed to facilitate commerce while mitigating risk. This is a key aspect of international trade and finance, where parties involved in transactions may not know each other well, and there are significant risks, such as credit risk, fraud risk, and currency risk.

By using various trade services—such as letters of credit, trade insurance, and documentary collections—businesses can reduce the uncertainties associated with cross-border transactions. For example, a letter of credit provides a guarantee from a bank that payment will be made to the seller, provided the seller meets specific terms. This helps build trust between trading partners and encourages trade by limiting the exposure to potential losses.

In contrast, facilitating commerce without risk is not realistic in international trade, as there will always be some risk involved. Additionally, trade services do not eliminate the need for contracts; rather, they often complement contractual agreements by adding a layer of security. Finally, while trade services can involve financing options, their primary focus is on risk mitigation rather than simply providing loans to buyers.