We all know that in business we often need to spend money to make money. Managing cash and working capital is therefore often critical to business success. Trade Finance is one tool that allows a business to unlock capital and act swiftly on opportunities. Let's delve a bit deeper into Trade Finance!
What is Trade Finance?
Trade finance is the financing of goods or services in an international or local trade transaction. It acts as a line of credit, providing immediate access to capital for the purpose of buying stock, inventory, or equipment. Put simply, trade finance allows you to make timely purchases for your future needs whether that be pre-purchasing bulk stock for future B2C Christmas orders or purchasing equipment from offshore that you can then refinance to an asset loan once onshore.
Benefits of Trade Finance:
- – Businesses can take advantage of any pay on time/early incentives that suppliers offer.
- – Prevents your business’s cashflow from being tied up in offshore goods which could be impacted by delivery delays.
- – Allows your company to request higher volumes of stock or place larger orders with suppliers, leading to economies of scale and bulk discounts.
- – Ability to bring offshore equipment on shore with ease.
- – Cash flow management options.
- – The financer will often facilitate the FX for overseas supplies & organise freight forwarding, shipping and customs for the goods which makes the process of purchasing goods a streamlined process.
Trade Finance & Asset Finance:
Specifically, we see Trade Finance used most commonly for offshore asset purchases in the form of equipment and heavy machinery. Trade finance can provide the short-term finance to safely procure an asset from an overseas supplier, before then converting to an asset finance loan facility once it is landed. This allows your business to take possession of the asset with the ease and enjoyment of fixed monthly repayments – and maintaining their cashflow while waiting for the arrival of the asset.
Examples of Trade Finance:
- – Our client, a large multisite optometrist, use a trade facility to procure a significant volume of frames to retail. Purchasing in bulk allowed them to ensure all sites were stocked and also taking advantage of a volume-based discount from the supplier. Without Trade Finance, they would not have had the healthy cash balance to carry out regular operations and pay staff & rent etc.
- – We have also seen specialist medical clinics utilise these types of facilities as a short term means to safely procure assets from overseas suppliers and then convert them to an asset financing facility (as mentioned above).
We want to ensure your business is as successful and secure as it can be. Trade finance may be an avenue to ensure this is the case. To discuss how we can assist you with trade finance, please place and enquiry today.