Solution

A buyer's credit is a loan facility extended to an importer by a bank or financial institution to finance the purchase of capital goods or services and other big-ticket items. Buyer’s credit is a very useful mode of financing in international trade, since foreign buyers seldom pay cash for large purchases, while few exporters have the capacity to extend substantial amounts of long-term credit to their buyers. A buyer’s credit facility involves a bank that can extend credit to the importer, as well as an export finance agency based in the exporter's country that guarantees the loan. Export credit is a loan facility extended to an exporter, by a bank, in the exporter's country. Trade credit is the credit extended by a supplier to another for the purchase of goods and services. Trade credit facilitates the purchase of supplies without immediate payment. Trade credit is commonly used by business organizations as a source of short-term financing. Import finance also helps to bridge the gap between the payment and receiving of goods imported. Letter of Credit is one of the forms of import finance which is payment mode used in the International Trade between importer and exporter to cover third-party credit risk. What this means is that if the importer defaults, his bank will have to pay on his behalf. Import finance differs from the Buyers credit as buyers credit is a funding mechanism used by importer to funds his transaction and is a on-balance sheet loan for the bank while letter of credit is an off-balance sheet non-fund based form of financing.