Struggling to obtain workable credit terms from your overseas suppliers? Perhaps it’s time to consider trade finance.

Whilst it might be possible to secure some great deals on price from foreign suppliers, when it comes to paying for them the options are often not quite as inviting.

It shouldn’t really come as a surprise to a business owner looking to source product from overseas when they are asked to pay at best within a few days or at worst immediately. Just as UK sellers tend to be cautious of a new relationship, especially one where terms and customs may differ, it’s only natural for them to want to see the colour of the money fairly early.

Nautical Miles

The problem is of course compounded if you’re paying for a container full of goods that still has a few weeks of bobbing along on the ocean ahead of it before you can even start thinking of selling it.

Many businesses have faced the conundrum of having a very credit worthy customer place a decent sized order but nothing in the bank to finance it. However, just like an invoice, these orders do have a value and when linked to an invoice finance facility can start a pretty seamless funding cycle of the whole transaction.

On the margin

Many banks and financial institutions offer trade finance facilities in conjunction with a factoring or invoice discounting arrangement. As long as there is a decent margin in the transaction, and the end customer represents an acceptable credit risk, they will open a letter of credit in favour of the seller allowing the goods to be shipped. There are fees involved of course and it’s worth bearing in mind that the longer the shipment time, the heavier the cost.

Order, invoice, cash

Although stand-alone trade finance deals are available they do need repaying from somewhere whereas those linked to an invoice finance facility provide a very tidy way of completing the process.

With the goods safely on the shores of Blighty they can be moved on to the customer and an invoice generated. The cash subsequently made available via the invoice finance facility can then be used in part to repay the trade finance obligation with the balance providing working capital in the usual way.

No trade barriers

As with most business transactions there is usually a solution to a perceived problem and trade finance is no exception. Again however, like all transactions, it pays to talk to those who know the market and can whittle down the options best suited to your situation because although the business world gets smaller and smaller it can still be a jungle out there.

by Steve Leeves