Most world trade relies on short-term credit, extended by the seller, the buyer or a bank
Back to the Trade Finance Guide
Ossiano Guides · Foundations of trade finance
Between shipment and payment someone funds the goods, and the payment terms decide whether that is the exporter, the importer or a finance provider standing between them.
Terms like this have a quick explainer. Tap or hover on them.
01 · The timing gap
Payment terms decide who funds the goods between shipment and payment
Every cross-border sale has a gap between the day the goods ship and the day the cash arrives. Someone funds the goods across that gap, and the payment term decides who. Under , the goods are shipped and delivered before payment is due, typically in 30, 60 or 90 days, according to the US International Trade Administration's Trade Finance Guide. The seller extends the credit.
Under , the buyer makes full or significant partial payment, usually by credit card or wire transfer, before shipment, the ITA guide explains. Here the buyer funds the goods. The ITA's Methods of Payment page describes open account as one of the most advantageous options to the importer and one of the highest risk options for an exporter.
Between those two ends sit the and the documentary collection, where banks handle the documents. The ITA guide orders all four methods by risk: open account carries substantial risk to the exporter, cash in advance places the risk on the importer. Our guide to the payment terms spectrum compares them side by side.
Credit that firms give each other directly is . The BIS Committee on the Global Financial System (CGFS) names inter-firm trade credit, including open account and cash-in-advance transactions, as the principal alternative to bank trade finance.
Figure 1 · Try it
What does waiting to be paid cost?
Move the slider to set the invoice, then pick the payment term and a cost of funds.
Payment term, days after shipment
Annual cost of funds (illustrative)
Days outstanding
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The seller waits this long for cash
Cost as percent of invoice
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Cost of carrying the receivable
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Our Research Desk used simple interest: invoice x annual rate x days / 360, the US money market convention. The rates shown are for illustration and are not Ossiano pricing.
This calculator explains the concept only. Actual costs vary with the buyer, the country, the currency, the tenor and the finance provider.
02 · Who provides it
Banks directly support about one-third of global trade
Estimates of how much trade runs on credit differ because each counts something different. The World Trade Organization says some 80 to 90 percent of world trade relies on trade finance, a broad measure that counts trade credit and insurance or guarantees, mostly short-term.
The BIS CGFS measures bank finance alone. It estimates that bank-intermediated trade finance directly supports about one-third of global trade, with letters of credit covering about one-sixth of total trade. It puts the 2011 flow of bank-intermediated trade finance at US$6.5 to 8 trillion, of which around US$2.8 trillion was letters of credit. The estimates were published in January 2014 and rest on 2011 data.
IMF and BAFT-IFSA bank surveys from 2009 to 2011, as reported by the CGFS, put the bank-intermediated share at about 40 percent of global trade, with the remainder on open account or cash in advance. Each of the three figures carries its own basis and date, so read them as separate measures.
The trade they support keeps growing. Global trade reached a record US$35 trillion in 2025, according to the ICC Trade Finance Pulse Check of September 2026.
Figure 2
How much of trade runs on credit
Each card gives one estimate and what it counts.
Sources: World Trade Organization, trade finance page, accessed September 2026; BIS Committee on the Global Financial System, Trade finance: developments and issues, CGFS Papers No 50, January 2014 (2011 data). The 40 percent figure is from IMF and BAFT-IFSA bank surveys, 2009 to 2011, as reported by the CGFS.
03 · Short tenor
Trade finance is short-term and tied to the movement of goods
Trade finance products typically carry short-term maturities, though capital goods trade may be supported by longer-term credits, the BIS CGFS notes. In ICC trade register data cited by the CGFS, the average maturity of funded trade loans was about 3.5 months, and letters of credit and guarantees had slightly shorter maturities. Months, rather than years, is the usual of trade finance.
Bank capital rules describe the same profile. The Basel Committee's paper on the treatment of trade finance applies a to trade letters of credit that are short-term and , meaning they arise from the movement of goods.
"short-term self-liquidating trade letters of credit arising from the movement of goods"
Basel Committee on Banking Supervision, Treatment of trade finance under the Basel capital framework, October 2011
Insurance follows the same short horizon. covers terms up to 180 days, and up to 360 days in some cases, according to the ITA guide. Our guide to tenor covers how maturity is set.
04 · Risk
The ICC Trade Register classes trade finance as low risk
The ICC Trade Register 2025 finds that trade finance and export finance represent a low-risk asset class. The 2025 Register covers about US$1.2 trillion of 2024 exposures. The ICC reports losses on two bases: the , which weights defaults by dollar value, and the , which counts defaulting obligors.
Capital rules have recognized the short tenor. In October 2011 the Basel Committee waived the one-year maturity floor for issued and confirmed letters of credit under the advanced internal ratings-based approach, and waived the sovereign floor for trade finance claims on banks in low-income countries. The Committee set out the aim of the changes:
"improve the access to and lower the cost of trade finance instruments"
Basel Committee on Banking Supervision, Treatment of trade finance under the Basel capital framework, October 2011
05 · Longer credit
Capital goods need longer credit, which export credit agencies support
Capital goods trade may be supported by longer-term credits, the BIS CGFS notes, and that is where an comes in. The OECD Arrangement on Officially Supported Export Credits applies to official support for exports with a repayment term of two years or more.
covers terms of up to five years, the ITA guide states. The Export-Import Bank of the United States (EXIM) offers medium-term export credit insurance with extended credit terms of 1 to 5 years, in some cases up to 10 years, covering 85 percent of the CIF invoice value after a 15 percent buyer down payment. Its Loan Guarantee works on the same split: an 85 percent guarantee, with a 15 percent down payment required.
On September 18, 2025, the EXIM board approved nearly US$185 million for Grupo Mexico Transportes (GMXT) to buy modernized locomotives from Wabtec Corporation, and US$99 million for Bahamas LNG Partner Ltd. for US liquefied natural gas. The release did not state the tenor.
06 · Company view
A company's cash cycle shows the credit in days
Credit given to customers and received from suppliers shows up in company accounts as days. Plexus Corp reported an annualized cash cycle of 62 days at July 4, 2026, from 64 days at April 4, 2026 and 69 days at June 28, 2025. Plexus calculates its cash cycle as the sum of days in accounts receivable, contract assets and inventory, less days in accounts payable and advanced payments.
The general measure is the , a standard formula: plus days inventory outstanding, minus days payable outstanding. In our illustrative worked example, a company with 55 days of sales outstanding, 70 days of inventory and 40 days of payables has a cycle of 85 days; stretching payables to 75 days cuts the cycle to 50 days. Our guide to the cash conversion cycle sets out each step.
Figure 3
Credit in a company's accounts: Plexus cash cycle, July 4, 2026
Each row is one component of the cash cycle, in days.
Source: Plexus Corp, fiscal 2026 third quarter results (Exhibit 99.1), via SEC EDGAR, July 29, 2026.
07 · Ossiano view
Credit is built into trade, and it turns over fast
OBSERVATION 01
Credit is the norm in trade
The WTO puts the share of world trade relying on trade finance at 80 to 90 percent. Payment terms decide who provides that credit.
OBSERVATION 02
Short tenor recycles capital
Funded trade loans averaged about 3.5 months in ICC register data. At that tenor a finance provider's capital turns over more than once a year.
OBSERVATION 03
Losses have been low
The ICC Trade Register 2025 describes trade and export finance as a low-risk asset class. That record supports the flow of bank capital into trade.
Summary
Someone always funds the goods in transit, and the payment term says who
The WTO estimates that 80 to 90 percent of world trade relies on trade finance, mostly short-term. On open account the seller ships first and is paid, typically, in 30, 60 or 90 days; with cash in advance the buyer pays before shipment. Banks directly support about one-third of global trade on the BIS CGFS estimate.
The credit is short. Funded trade loans averaged about 3.5 months in ICC register data, and the ICC Trade Register 2025 finds trade finance a low-risk asset class. Capital goods need longer terms, which export credit agencies support for two years or more.
Related guides: What is trade finance?; The trade finance gap; The payment terms spectrum; Open account trade; The cash conversion cycle; Tenor explained; Working capital and trade finance.
Instrument library: Open account; Cash in advance; Trade loan; Trade credit insurance; ECA-backed finance (buyer and supplier credit). Every term in this guide is defined in the Trade Finance Glossary.
For questions on how these shifts affect existing or planned trade finance exposures, contact the Ossiano Research Desk.
Sources
- World Trade Organization, Trade finance, undated. Supports: some 80 to 90 percent of world trade relies on trade finance, mostly short-term.
- Bank for International Settlements, Committee on the Global Financial System, CGFS Papers No 50, Trade finance: developments and issues, January 2014. Supports: about one-third of global trade directly supported by trade finance and about one-sixth covered by letters of credit (page 1); inter-firm trade credit as the principal alternative (page 4); 2011 flow of US$6.5 to 8 trillion, around US$2.8 trillion letters of credit (page 8); IMF and BAFT-IFSA survey estimate of about 40 percent (page 9); short-term maturity profile (page 4); average funded trade loan maturity of about 3.5 months (page 14).
- US International Trade Administration, Trade Finance Guide: A Quick Reference for US Exporters (2022 edition), July 2022. Supports: open account terms of 30, 60 or 90 days (Chapter 6); cash in advance (Chapter 3); risk characterizations of the four payment methods; short-term and medium-term export credit insurance tenors (page 21).
- US International Trade Administration, Methods of Payment, undated. Supports: open account as one of the most advantageous options to the importer and one of the highest risk options for an exporter.
- International Chamber of Commerce, ICC Market Commentary, Trade Register 2025, October 2025. Supports: trade and export finance as a low-risk asset class; coverage of about US$1.2 trillion of 2024 exposures.
- International Chamber of Commerce, ICC Trade Finance Pulse Check, September 2026, September 2026. Supports: global trade of a record US$35 trillion in 2025.
- Bank for International Settlements (Basel Committee on Banking Supervision), Treatment of trade finance under the Basel capital framework, October 2011. Supports: short-term self-liquidating trade letters of credit and the credit conversion factor (page 3); the October 2011 waivers of the maturity floor and the sovereign floor; the quoted aim of the changes.
- OECD, Arrangement on Officially Supported Export Credits, TAD/PG(2026)1, January 26, 2026. Supports: scope covering repayment terms of two years or more (Article 5).
- Export-Import Bank of the United States, Medium-Term Export Credit Insurance (EBK-MEDT-26-02-18), February 18, 2026. Supports: credit terms of 1 to 5 years, in some cases up to 10 years; 85 percent cover after a 15 percent down payment.
- Export-Import Bank of the United States, Loan Guarantee, undated. Supports: 85 percent guarantee with a 15 percent down payment.
- Export-Import Bank of the United States, EXIM Board of Directors approves infrastructure investments totaling nearly $285 million, September 18, 2025. Supports: the GMXT locomotive and Bahamas LNG Partner approvals.
- Plexus Corp via SEC EDGAR, Fiscal 2026 third quarter earnings release, Form 8-K Exhibit 99.1, July 29, 2026. Supports: annualized cash cycle of 62, 64 and 69 days; component days and the cash cycle definition (Figure 3).
- Alternative Reference Rates Committee, SOFR "In Arrears" Conventions for Syndicated Business Loans, July 22, 2020. Supports: Actual/360 as the standard US money market day count, used in Figure 1.
- Board of Governors of the Federal Reserve System, Selected Interest Rates (Daily), H.15, September 29, 2026. Supports: money market rates annualized on a 360-day year, used in Figure 1.
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