Trade finance facilitates the commercial activity of both domestic and international trade, enabling you to fulfil your customers’ orders quickly and manage your cash flow at the start of the sales cycle. As a wholesaler, distributor or importer that has a proof of sale for which you require stock quickly, trade finance will help you pay suppliers without having to wait weeks for customers to settle their accounts.
Receiving an order from a large, influential brand is an exciting moment for any business but fulfilling that order when you lack available funds is both frustrating and daunting. If you are unable to secure suitable credit terms with your supplier, trade finance advances funds and pays the supplier directly on your behalf. Essentially, as a definition, trade finance gives you the funds you need to pay both local and overseas suppliers before you have received payment from your customers.
Most exporters require importers to pay for goods before they are shipped but many buyers are reluctant to release the payment without proof of despatch or delivery. Having to pay upfront causes potential cashflow issues and increases the risks for the parties involved. However, with a confirmed order of goods, such as a purchase order from a customer, alternative lending providers can hasten the speed of the sale, mitigate the risks involved in the transaction and provide an advance on the goods.
Trade finance gives exporters the peace of mind that they will receive payment for goods, whilst the importer receives the goods sooner and pays later. The buyer pays back the amount minus fees once the customer had paid for the goods.
Trade finance is a short-term funding solution, also known as purchase order finance or import finance, that enables businesses to fulfil orders quickly and seamlessly. It works in a similar way to invoice finance but it operates specifically to support wholesalers, distributors and importers and is available for both domestic and international, global trade deals.
Typically, the trade finance companies will purchase the goods on behalf of the trader. Once the customer pays for the goods, the buyer repays the finance provider minus their agreed fees.
In most cases, lenders offer lower interest rates for larger orders. The trade finance provider will assess all parties involved in the transaction and, if all have good trading standards, your rates could reduce further. As the funding provider remains liable for the cost of the goods, an additional management fee is usually applied to the arrangement, which is known as credit protection.
A 'trade finance letter of credit' guarantee can be used in the process. It guarantees that goods or services received will be paid for. It is internationally recognised and legally binding. These come in varying forms. 'Export letters of credit' are used to confirm beneficiaries, 'Import letters of credit' are used on behalf of suppliers and 'Standby letters of credit' to support open account trading- mitigating payment risks. There are also other forms of trade finance guarantees and specialist trade finance bonds that can work for both importers and exporters.
Trade finance services take the pressure off your day-to-day cashflow. It is a form of working capital finance that helps small to medium-sized businesses complete orders – particularly large or unexpected orders – quickly. If you operate a small to medium-sized company, trade finance will support your regular trade activities by boosting your cashflow, increasing the speed of order fulfilment to market and helping you to retain good customer relationships. You will also be able to fulfil much larger orders to facilitate the growth of your business. Credit terms are flexible and you could access up to £25,000 to fulfil both domestic and international trade opportunities.
To find out if you qualify for trade finance, please complete our short online application.
Yes, trade finance is designed for trading into the global marketplace. There may, however, be some countries that fall out of scope with some lenders. As a trade finance broker, we are best placed to access funding for UK businesses that trade with many international countries. We have an array of lenders who can help - alternatives to the high street banks such as HSBC, Lloyds, Santander etc.
If you import goods for resale and have large orders but not the funds to fulfil them, trade finance could offer your business the financial support it needs. If you have good relationships with both your suppliers and customers, alternative finance providers could give you the additional capital you need to grow your business.
If trade finance products are not a suitable funding option for your business, you may wish to consider the benefits of other alternative financial products, such as invoice finance, invoice factoring or invoice discounting. Please view our full range of funding options here.