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Trade finance

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Trading over long distances, both domestically and internationally, can be a complicated process with a lot of risks involved. When partnered with the right funder, trade finance can serve to minimise potential risks and allow your business to access new opportunities while keeping your cash flow at healthy levels, allowing you to continue with the business’ day-to-day running.

What is trade finance?

Trade finance refers to various funding options to help your business cover the costs of purchasing or distributing goods. International transactions can take a long time to clear, meaning cash could be tied up for lengthy periods. By securing a third-party’s involvement, it adds a level of security to these transactions, allowing companies to do business together and operate while waiting for payments to clear. It also helps build relationships between clients and suppliers without having to worry about dealing with the terms and finding deposits for goods.

Several arrangements can be incorporated into trade finance, including invoice finance.

How does trade finance work?

After you order goods from your international supplier, the following will occur:

  • The funder either prepays or makes a guarantee.  After you’ve ordered as normal, your funder can either make a pre-payment or a guarantee of payment once the goods are shipped, often as a letter of credit. These allow for the transfer of goods without fear of either party not delivering on what was agreed. This pre-payment is made against confirmed orders from your customers.
  • Payment is received.  Once the customer receives their goods, they’ll pay the remaining balance, which the funder will forward minus their fee and/or initial deposit.
Trade Finance

Advantages of trade finance

  • Helps maintain your cash flow.  Financing international trade can be costly. Trade finance can provide additional funding to pay your supplier and make up for cash potentially tied up, meaning your business can continue trading as before while waiting for payments to clear. 
  • Builds relationships.  By steadying your cash flow, trade finance can help build relationships between you and your suppliers. It also instils confidence in your business; so more people may be willing to do business with you in the future. A more reliable cash flow boosts your business’ liquidity, attracting more potential clients and suppliers to work with you.
  • Minimises risk.  International markets and exchange rates are in constant flux, so currency fluctuations can impact your business no matter how careful you are. Your arrangement may include a ‘hedging’ protection which minimises the effects of these fluctuations. 

Could trade finance help your business?

If you’re looking for a flexible method of trading or expanding internationally, trade finance could help your business reach new customers and build strong relationships while easing the burden of day-to-day dealings with suppliers. While trade finance can be extremely complicated and daunting for the inexperienced, there are many different options we can explore, and help match your business with the right lender who will make things as easy as possible for you.

In summary

Trade finance can help you purchase and distribute goods to and from overseas. It allows your business to build relationships with new clients and suppliers while minimising the detrimental effects on your cash flow. By guaranteeing payments to both parties, it removes a lot of the uncertainty which can go with large international transactions. It can also help release cash tied up in those transactions.

How we can help

If you’re looking to trade overseas, either via import or export, and want to avoid your cash flow suffering or getting tied up in the process, get in touch with us. We can assess your business’ circumstances and needs to match you with the funder best suited to help. All initial advice is free and impartial, with no obligation.

Beverley Horton

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Authored by Richard Froggatt

Richard Froggatt

Senior Consultant

Beverley Horton Christopher Callaghan Stephen Hall

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