A visual timeline of international trade finance

Letters of credit and promissory notes on clay tablets are the oldest known forms of trade finance. These formal promises to make a payment at a later date were used as they are today: To facilitate business activities and enhance trust. 

The Roman Empire established a robust legal framework, including contract regulations and rules around debt recovery, within which both trade and finance could flourish. Letters of credit were used to guarantee payment for goods shipped over long distances, contributing to extensive trade networks that spanned the Empire.    

London became the heart of the trade finance world, and bills of exchange (a written unconditional agreement to pay a specified sum in the future) issued there supported transactions globally.  

As the industrial revolution unfolded over the following 80 years, modern banking and credit models emerged, increasing the volume and velocity of global trade. 

In 1821, the UK tied the British pound to a specific quantity of gold, leading other economies to adopt this as a standard. This international gold-based monetary system provided stability to international trade and investment. 

The first formal export credit agency was established in the UK post-WW1 in response to economic disruptions, aiming to support national exporters and facilitate trade.  

Established the rules for commercial relations between 44 countries. A new international monetary system was setup, in which the USD was tied to gold and other currencies tied to USD, and the International Monetary Fund (IMF) and World Bank were born. 

The GATT was signed by 23 countries aiming to reduce tariffs and other barriers to promote international trade and economic recovery post-WWII. 

The use of traditional risk mitigation instruments such as letters of credit began to decline in favor of trade on open account terms, where goods are delivered before payment is made. Spurred by pacts such as the Southern Common Market Agreement and the North American Free Trade Agreement, alongside the emergence of major trading hubs in Singapore and Hong Kong, the rise of globalization in the 1980s and 1990s caused open account trading to surge.  

Aided by digital technologies, SCF allows buyers to extend payment terms while offering suppliers early payment on their invoices. 

In 2017, the United Nations Model Law on Electronic Transferable Records (MLETR) was established. The UK and others then passed their own laws to legalise electronic bills of exchange and bills of lading (the latter being documents issued by carriers to acknowledge receipt of goods). 

A multitude of AI innovations have recently emerged, such as optical character recognition for better document processing and checking, as well as generative AI tools for improving credit underwriting, particularly for smaller businesses. 

Smart contracts, based on blockchain, may simplify operations including the issuance of letters of credit, management of supply chains, recordkeeping and document verification.