Trade Finance

What is the Trade Finance Module?

The Trade Finance module manages the financial instruments that underpin GCC procurement and trading operations. It tracks Letters of Credit (LC), Bank Guarantees (bid bonds, performance guarantees, advance payment guarantees), and customer credit facilities -- all in one place. For each instrument, Tawridy monitors amounts, expiry dates, utilization, and renewal requirements so your finance team never misses a deadline or exceeds a limit. Customer credit facilities are automatically calculated from outstanding invoices and open orders, giving you a real-time view of credit exposure. Combined with cash flow forecasting, the module helps you plan working capital needs and avoid liquidity gaps.

How It Connects

Direction	Connected Module	Relationship
In <--	Purchase Orders	POs requiring LC payment trigger LC creation
In <--	Invoices	Outstanding invoices feed into credit utilization calculations
In <--	Customers	Credit limits and facilities are defined per customer
Out -->	Tenders	Bid bonds are linked to active tender submissions
Out -->	Projects	Performance guarantees are tracked against project timelines
Both	Documents	LC documents, bank guarantee certificates, and amendment letters are stored

Step-by-Step Guide

Letters of Credit (LC)

1. Create an LC -- navigate to Operations > Trade Finance > Letters of Credit > New LC.
2. Link to a PO -- select the Purchase Order that requires LC payment. The system pre-fills the LC amount from the PO grand total.
3. Enter bank details -- issuing bank, advising bank, LC type (irrevocable, confirmed, transferable), and payment terms (sight, deferred, usance).
4. Set dates -- issue date, latest shipment date, and expiry date. The system calculates days remaining and sends alerts at 30/15/7 days before expiry.
5. Track utilization -- as shipments are made and documents presented, record drawdowns against the LC. The system tracks available balance.
6. Manage amendments -- if the LC needs modification (amount increase, date extension, term change), record the amendment with version tracking.
7. Close the LC -- once fully utilized or expired, close the LC. The system reconciles total drawdowns against the original amount.

Bank Guarantees

1. Create a guarantee -- go to Operations > Trade Finance > Bank Guarantees > New Guarantee.
2. Select the type: Bid Bond, Performance Guarantee, or Advance Payment Guarantee.
3. Link to context -- link bid bonds to tenders, performance guarantees to projects, and advance payment guarantees to POs.
4. Enter details -- guarantee amount, issuing bank, beneficiary, issue date, expiry date, and auto-renewal terms (if applicable).
5. Monitor status -- track whether the guarantee is Active, Expired, Called (invoked by the beneficiary), or Released.
6. Request release -- when the underlying obligation is fulfilled (tender awarded, project completed, advance recovered), submit a release request to the bank.

Customer Credit Facilities

1. Set credit limits -- in each customer record, define the approved credit limit and payment terms.
2. Monitor utilization -- the system auto-calculates utilization as: outstanding invoices + open order value. This updates in real time.
3. Review alerts -- when a customer's utilization exceeds 80% of their credit limit, the system alerts the sales and finance teams. At 100%, new orders are blocked pending approval.
4. Adjust limits -- credit limit changes require finance manager approval and are logged with the reason and effective date.

Cash Flow Forecasting

Period	Expected Inflows	Expected Outflows	Net Position
This Week	Customer payments due	PO payments, LC drawdowns	Calculated
Next 2 Weeks	Upcoming invoice due dates	Scheduled supplier payments	Calculated
Next Month	Projected sales	Open PO commitments, guarantee fees	Calculated
Next Quarter	Pipeline-weighted revenue	Planned procurement, LC renewals	Estimated

Key Fields Explained

Field	Description
instrument_type	Letter of Credit, Bid Bond, Performance Guarantee, or Advance Payment Guarantee.
reference_number	Bank-issued reference number for the instrument.
amount	Total value of the financial instrument in the specified currency.
currency	Instrument currency (AED, SAR, BHD, OMR, QAR, KWD, USD, EUR).
issuing_bank	The bank that issued the LC or guarantee.
beneficiary	The party in whose favor the instrument is issued (supplier for LC, client for guarantees).
issue_date	Date the instrument was formally issued by the bank.
expiry_date	Date the instrument expires. Alerts are sent at 30/15/7 days before expiry.
utilization	For LCs: total drawdowns to date. For credit facilities: outstanding invoices + open orders.
available_balance	amount - utilization -- the remaining capacity of the instrument.
status	Active, Partially Utilized, Fully Utilized, Expired, Called, or Released.
linked_document	The PO, Tender, or Project this instrument is associated with.
bank_charges	Fees charged by the bank for issuance, amendment, or renewal.
auto_renew	Whether the instrument automatically renews on expiry (common for performance guarantees).

Tips & Best Practices

TIP

Set up expiry alerts immediately for all active LCs and bank guarantees. A missed LC expiry can result in the supplier refusing to ship, while an expired bid bond may disqualify you from a tender. Configure alert recipients in Settings > Notifications > Trade Finance.

WARNING

Customer credit utilization is calculated automatically, but it only includes data within Tawridy. If your organization has offline or legacy transactions, manually adjust the utilization to reflect the true exposure until all data is migrated.

TIP

Use the cash flow forecast dashboard weekly to anticipate liquidity needs. The forecast combines LC drawdown schedules, guarantee fee payments, customer payment due dates, and supplier payment commitments into a single timeline view.

TIP

For large projects requiring multiple guarantees (bid bond at tender stage, then performance guarantee after award), use the "Convert Instrument" feature to roll a bid bond into a performance guarantee. This maintains the history chain and avoids duplicate data entry.

WARNING

Never let a performance guarantee expire before project handover and the defects liability period. Some GCC government clients will invoke (call) the guarantee if it expires before formal project acceptance, even if the work is complete.

FAQ

Q: Can I track LCs in multiple currencies? A: Yes. Each LC is created in its own currency. The system converts amounts to your base currency using configurable exchange rates for consolidated reporting and cash flow forecasting.

Q: What happens when a customer exceeds their credit limit? A: The system blocks new sales orders for that customer and alerts the finance team. A finance manager can override the block with an approval that is logged for audit purposes. You can also configure a "soft limit" warning at 80% and a "hard limit" block at 100%.

Q: How are bank charges tracked? A: Each instrument has a Bank Charges section where you can log issuance fees, amendment fees, renewal fees, and any other bank charges. These are included in the total cost analysis for the related PO or project.

Q: Can I set up automatic LC creation when a PO is approved? A: Yes. In Settings > Trade Finance > Automation, you can configure rules to auto-create LC drafts when POs exceed a certain value or when the supplier's payment terms require LC payment. The draft still requires manual review and bank submission.

Q: Does the module integrate with banking systems? A: Tawridy supports document upload and manual status tracking. Direct SWIFT/bank API integration is on the roadmap. Currently, you update instrument statuses based on bank correspondence, and the system maintains the full history.