It’s a common scenario – you’ve got the orders and need to import the goods, but your supplier wants payment on shipment and you don’t have access to the cash needed. This is where Cashflow Finance Solutions can help, by introducing you to a specialist import finance company.
Import Finance can be a vital link in the chain to enable you to fulfil your orders and grow your business.
There are however many variations available in the range of import finance products but most Import Finance Companies won’t offer them all. On a positive note this gives you choice but it can be difficult finding what suits your business best. That is, unless you know where to look!
What is Import Finance?
Quite simply it is access to the finance you need to pay your suppliers. It can also be known as trade finance or purchase finance.
Who can use Import Finance?
If you purchase goods from another company to supply to your customers then it could be suitable for you. The goods can be purchased in the UK or abroad.
The goods typically need to be finished (although some Import Finance Companies will still fund if there is a small amount of work to be done eg branding, repackaging etc). There does need to be a good profit margin between cost price and selling price, so Import Finance isn’t usually suitable for commodities (as they tend to be high volume with low profit margins).
There usually needs to be confirmed orders in place for the goods to be imported (although there may be a small element for stock purposes). Bad debt protection usually needs to be available on the end customer.
How does Import Finance work?
The most common facilities work as follows:
1. You receive an order from your customer.
2. You place the order with your supplier.
3. You notify the Import/Trade Finance company of the details.
4. The Import Finance company agrees to pay the supplier (they can often pay deposits, and can arrange letters of credit if needed).
5. Your supplier delivers the goods to you OR
5. Your supplier delivers the goods to a bonded warehouse arranged by the Import Finance company.
6. You deliver the goods to your customer OR
6. Goods are delivered from the bonded warehouse to your customer.
7. Your customer pays the Import Finance company.
8. The Import Finance company refunds the balance to you.
However, depending on the credit terms with your end customer, an invoice finance facility (usually factoring) may also be required. This would allow the Import finance company to be repaid on delivery of the goods, and for you to receive some of your profit element before your customer has paid the invoice, thus allowing your customer to take advantage of the agreed credit terms.
1. Your suppliers are confident of being paid and will be keen to work with you. This may result in you being able to negotiate supplier discounts
2. Your cashflow isn’t tied up, meaning that you can continue to tender for business with the peace of mind that you can deliver
3. Your time is freed up by not having to worry about the paperwork involved in the importation of goods or having to raise Letters of Credit. You will have experts doing this for you.
There are also some import finance facilities which operate a revolving credit line i.e. a facility is agreed and as long as you can satisfy the following criteria you just draw down the cash you need to pay your suppliers. You then repay the Import Finance company within 90 -120 days (or sooner if you can). Then start all over again.
Criteria for revolving credit facility
- Turnover usually needs to be £1m plus or you have future orders confirming this
- 2 years’ worth of audited accounts
- £100k net worth in the business
- Prepared to give a director’s guarantee
- Your supplier is happy to work with the Import Finance company.
As well as the benefits listed above this product can be used for stock purchases (stock finance) as long as the stock has a quick turnaround i.e. so you can repay the facility when due.
It can also sit alongside an existing factoring facility as the security is not compromised i.e. no debenture required – only a director’s guarantee is needed.
Why not call us to discuss what options might be best suited to your business – 0845 180 1188. We can save you a lot of time.