Trade Finance, is essentially a short-term working capital line which uses the security in the stock or goods being exported / imported as a guarantee.
Trade finance makes it easier and less risky for importers and exporters to transact business through international trade. Approximately 80% of world trade relies on trade finance of one sort or another.
Trade finance works on a confirmed order basis, whereby the funder steps into the transaction and purchases the goods on behalf of the borrower, but retaining title, these are then imported and delivered to the customer. The funder is then paid by the end customer, who releases the profit, less fees to the borrower. If credit is extended to the customer, then invoice finance may be required to release cash. In some cases, the trade finance provider, can become the discounter on a deal by deal basis.
Supply chain finance, often referred to as supplier finance, is based on the credit rating of companies in the supply chain. The supplier and buyer work with the lender to the benefit of both parties, suppliers get paid immediately rather than waiting for payment terms and the buyer can extend payment terms, with the lender effectively funding the gap.
This funding is also when businesses have supply agreements or regular contracts with HM Government, which need funding for stock to make a product well before invoicing.
Have you considered?…..
- Taking advantage of an early payment discount by using trade finance to pay suppliers quicker
- Reducing customer late payment and bad debts, as the trade financier takes on these payment risks
- Using a trade finance provider to assist with the logistics and paperwork needed for imports