We Offer Commodity Financing Across The Commodity Lifecycle For Energy, Metals, Mining, Agricultural Crops & Livestock
Overview Of Commodity Financing We Offer
Commodity Finance is a specialized area of trade finance used for funding the production, transportation and sale of commodities. Commodity Finance provides primarily short-term financing facilities to a range of principals in the commodities business, including producers, commodity traders and major international trading operations, commodity importers and commodity exporters.
Commodity finance facilities may be secured or unsecured depending upon our assessment of the strength of the borrower and the structure and profitability of the underlying deal. Commodity finance is too broad a statement because there are really four different financings in the commodities lifecycle as illustrated in the table above.
Types of Commodities
Commodities are typically divided into four subcategories based on the nature of the product.
- Mining and Metals
- Oil and Gas
- Soft Commodities
Types of Commodity Financing
Commodity financing is typically grouped into four specialized categories of financing based on when in the deal cycle the financing is applied.
- Pre-export Finance
- Countertrade Finance
- Inventory Finance
Risks in Commodity Financing
Commodities have long been considered a high-risk proposition that’s often difficult to finance, frequently with good reason. More than 100 years ago early commodity trading exchanges were created so that farmers could mitigate the risk of commodities pricing extremes. Commodities have certain characteristics that make them inherently risky which, in turn, makes Commodity Financing riskier. Consider these factors, which are by no means a comprehensive list.
- Because commodities are traded openly on public exchanges, there is transparency in pricing, which has a tendency to limit margins.
- Commodity prices have always been susceptible to extreme price fluctuations that can substantially affect the value of the collateral securing the Commodity Financing, or even reduce a profitable deal into a money loser in a short time.
- Unlike manufactured goods or even raw materials for manufacturing, there is always the risk that external factors will severely impact the viability of the commodity collateral, which makes Commodity Financing difficult.
- Agricultural products can spoil, livestock can die, mines can flood and oil and gas can burn.
- Commodity Financing is often exposed, along with the collateral, to numerous cross-border jurisdictions, many of which are in emerging markets. Language barriers, cultural division, and political risk can all impact the venture.
For these reasons – and more – firms that finance commodities tend to become specialists who actually focus on a very narrow niche within commodities. In so doing they become experts in particular commodity asset classes. Many financiers who offer Commodity Financing limit the range of commodity asset classes they will finance.
Structured Commodity Financing
We also offer Structured Commodity Financing or SCF. Structured Commodity Financing is a sophisticated commodity-based trade finance method used for the import, export or foreign trade of commodities. More specifically it provides financing for commodity producers and commodity trading companies who do business in developing countries and emerging markets. We offer Structured Commodity Financing for metals, mining, energy, agricultural crops and livestock. If you would like to learn more, we have in-depth information about Structured Commodity Financing.
Commodity Financing We Offer
Seffex Capial offers worldwide trade finance and commodity finance services, providing comprehensive commodity finance solutions to the international commodities trade market. We apply decades of trade and commodity finance experience in every transaction in which we are involved, and we are exceptional at what we do. We offer clients a full range of commodity finance solutions, incorporating pre-export finance, shipping finance, and export credit agency-backed finance. Quite simply we are able to deliver comprehensive, solution-based financing to our clients by deploying:
- Issuance of Letters of Credit
- Standby Letters of Credit
- Guarantees and similar trade finance instruments
- Letter of Credit confirmation services
- Warehouse and receivables financing
Mining and Metals
We finance the full range of metals including ferrous, base, minor, precious metals and alloys. Our clients and counterparties range across the metal production spectrum including miners, smelters, refiners and traders all the way through to end-users. Our commodities financing capabilities enable us to provide a full financial service tailored to our clients’ requirements.
Energy, which is really just oil and natural gas, is a big part of our commodity financing business. Although we do an exceptional job in other areas, it can match the unparalleled expertise we offer in other finance sectors.
As a core discipline, we offer clients unrivaled expertise in agricultural commodity financing. We specialize in providing commodity finance to the agricultural sector worldwide, including developing countries despite emerging market risks.
Trade Finance Learning Center
With more than 80% of the world’s trade depending on trade finance it is an essential segment of the financial services sector. It is also one of the least understood of the financial services. One of the things that undermine people’s understanding of trade finance is the absence of a single vocabulary. Do a search for the definition of import financing, for instance, and the top 20 results will provide 20 different definitions. We are creating a learning center with content that will help improve understanding of trade finance and its various component segments. Each of the below tabs provides the factual information you need to make good business decisions, beginning with important trade finance definitions.
Trade Finance Terms
Accounts Receivable is money owed to a company by a customer for products and /or services sold. Accounts receivable is considered a current asset on a balance sheet once an invoice has been sent to the customer.
Accounts Receivable Factoring
Accounts Receivable Factoring is a method of Trade Financing where a company sells their accounts receivable in exchange for working capital. The purchaser of the receivables relies on the creditworthiness of the customers who owe the invoices, not the subject company.
For details go to Accounts Receivable Factoring »
Advance Against Documents
Advances Against Documents are loans made solely based on the security of the documents covering the shipment.
Asset Based Lending
Asset Based Lending is a method of Trade Financing that allows a business to leverage company assets as collateral for a loan. Asset-based loans are an alternative to more traditional lending which is generally characterized as a higher risk which requires higher interest rates.
Cash Against Documents
Cash Against Documents is the payment for goods in which a commission house or other intermediary transfers title documents to the buyer upon payment in cash.
Cash in Advance
Payment for goods in which the price is paid in full before shipment is made. This method is usually used only for small purchases or when the goods are built to order.
Cash with Order
Cash with Order is the payment for goods whereby the buyer pays when ordering and in which the transaction is binding on both parties.
Commercial Finance is defined as the offering of loans to businesses by a bank or other lender. Commercial loans are either secured by business assets, accounts receivable, etc., or unsecured, in which case the lender relies on the borrower’s cash flow to repay the loan.
Confirmed Letter of Credit
A Confirmed Letter of Credit is a Letter of Credit issued by a foreign bank, which has been confirmed as valid by a domestic bank. An exporter whose form of payment is a Confirmed Letter of Credit is assured of payment by the domestic bank who confirmed the Letter of Credit even if the foreign buyer or the foreign bank defaults.
Consignment is a delivery of merchandise from an exporter (the consignor) to an agent (the consignee) subject to an agreement by the agent that the agent will sell the merchandise for the benefit of the exporter, subject to certain limitations, like a minimum price. The exporter (consignor) retains ownership of and title to the goods until the agent (consignee) has sold them. Upon the sale of the goods, the agent typically retains a commission and remits the remaining net proceeds to the exporter.
For details go to Consignment Purchase »
A Cross-Border Sale refers to any sale that is made between a firm in one country and a firm located in a different country.
Factoring is the selling of a company’s invoices and accounts receivable at a discount. The lender assumes the credit risk of the debtor and receives the cash when the debtor settles the account.
Invoice Discounting is a type of loan that is drawn against a company’s outstanding invoices but does not require that the company give up administrative control of those invoices.
factoring invoices is one of the most common methods of trade financing. Your company sells their invoices to a factor in exchange for immediate liquidity. The factor who purchases the invoices relies on the creditworthiness of the customers who owe the invoices, not the subject company.
Irrevocable Letter of Credit
Irrevocable Letter of Credit is a Letter of Credit in which the specified payment is guaranteed by the bank if all terms and conditions are met by the drawee.
Letter of Credit
Letter of Credit or LC is the most common trade finance solution in the world. A Letter of Credit is a document issued by a bank for the benefit of a seller or exporter, which authorizes the seller to draw a specified amount of money, under specified terms, usually the receipt by the issuing bank of certain documents within a given time.
Open Account is a trade arrangement in which goods are shipped to a foreign buyer without guarantee of payment. The obvious risk this method poses to the supplier makes it essential that the buyer’s integrity be unquestionable.
Pro forma Invoice
Pro forma Invoice is an invoice provided by a supplier prior to the shipment of merchandise, which informs the buyer of the kinds, nature and quantities of goods to be shipped along with their value, and other important specifications such as weight and size.
Receivable Management involves processing activities related to managing a company’s accounts receivable including collections, credit policies and minimizing any risk that threatens a firm from collecting receivables.
Revocable Letter of Credit
Revocable Letter of Credit is a Letter of Credit that can be canceled or altered by a buyer after it has been issued by the buyer’s bank.
Structured Trade Finance
Structured Trade Finance is cross-border trade finance in emerging markets where the intention is that the loan gets repaid by the liquidation of a flow of commodities.
Trade Credit Insurance
Trade Credit Insurance is a risk management product offered to business entities wishing to protect their balance sheet assets from loss due to credit risks such as protracted default, insolvency, and bankruptcy. Trade Credit Insurance often includes a component of political risk insurance, which ensures the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation, etc.