The Trade Cycle

Abstract

The role of the trade cycle timeline is explained and how this is used to plot the time flow of goods, documents, and cash to determine the amount of required credit support, and the optimum form and duration of financing. The stages of the trade cycle and related risk profile of each are described as the transaction progresses from placement of the order to goods in transit from the supply chain, manufacture, warehousing, and delivery of the goods to the end-buyer, culminating in the trade receivable from which the trade financier will be repaid. This enables the credit facility to be structured to align to the cash flow of the client’s trade cycle and to set triggers to monitor the timely delivery of goods.