{"id":203,"date":"2018-08-28T15:15:17","date_gmt":"2018-08-28T15:15:17","guid":{"rendered":"https:\/\/swoopfunding.com\/au\/?p=203"},"modified":"2024-06-13T14:49:51","modified_gmt":"2024-06-13T14:49:51","slug":"is-trade-finance-for-me","status":"publish","type":"blog","link":"https:\/\/swoopfunding.com\/au\/blog\/is-trade-finance-for-me\/","title":{"rendered":"Is Trade Finance For Me?"},"content":{"rendered":"

What is trade finance?<\/b><\/p>\n

Trade finance is a form of working capital finance<\/a> designed to give you the cash you need to buy inventory or stock from a supplier. It is a loan that delivers payment to an exporter on behalf of the importer, before the goods have arrived. The lender will loan money to the importer so that the exporter can be paid once goods have been shipped. The function of trade finance is to act as a third-party to remove the payment risk and the supply risk, whilst providing the exporter with accelerated receivables and the importer with extended credit.<\/span><\/p>\n

As trade finance is based on purchase orders, it\u2019s sometimes called purchase order finance or import finance. If you\u2019re importing or exporting to some U.K customers and others abroad, trade finance could help you.<\/span><\/p>\n

Example<\/b><\/p>\n

Cindy\u2019s Chocolates has been selling chocolates in the U.K for a few months and the brand is growing in popularity. A major department store notices Cindy\u2019s products and orders 2,000 units for the run-up to Christmas. It\u2019s a great opportunity to get the product on the shelves in time for one of the busiest times of the year. However, Cindy has only been selling a 300-400 units per month until now, and doesn\u2019t have enough money to pay her supplier for an order of this size. As the customer and supplier are both established businesses, Cindy is able to approach a trade finance lender.<\/span><\/p>\n

The trade finance lender looks at Cindy\u2019s purchase order from the department store, and carries out the standard due diligence. Once they\u2019re satisfied they\u2019d like to work with Cindy, they order the products from the manufacturer. With trade finance in place, Cindy\u2019s supplier is paid sooner than normal, so the products can be shipped at an earlier date. The supplier invoices the trade finance company for the shipped goods; once the department store pays the trade finance company, Cindy receives the profits, minus their fees.<\/span><\/p>\n

Advantages<\/b><\/p>\n

Allows for growth<\/b><\/p>\n

More working capital and better cash flow management will allow the business owner to keep in control of the day-to-day running costs, whilst growing and fulfilling larger orders that wouldn\u2019t have been possible before.<\/span><\/p>\n

Higher profit margins<\/b><\/p>\n

SMEs can buy in bulk or volume, often at reduced costs. Trade finance strengthens the relationship between buyers and sellers. This is also an opportunity to increase your profit margins.<\/span><\/p>\n

Reduces bankruptcy risk<\/b><\/p>\n

External financing or revolving credit facilities<\/a> can ease the pressure of <\/span>ate payments from debtors, bad debts, excess stock and demanding creditors<\/span> that many SMEs end up having to deal with.<\/span><\/p>\n

Companies and providers<\/b><\/p>\n

Usually, the mainstream banks such as HSBC and Barclays only work with businesses with revenue in the millions, so they\u2019re not an option for smaller companies.<\/span><\/p>\n

There are lots of lenders offering trade finance, invoice finance<\/a>, or a combination, including Scottish Pacific, BACB and Aldermore.<\/span><\/p>\n

Eligibility and criteria<\/b><\/p>\n

Is trade finance right for your business? Ask yourself these two questions:<\/span><\/p>\n