Trade finance helps you get the cash to pay your suppliers upfront, reducing the stress on your cash flow. Find out the ins and outs of the product and whether it’s a right fit for your business below.
What is Trade Finance?
Trade finance is a unique cash flow facility that gives you the upfront funds you need to cover supplier costs. You are then free to use the the cash to focus on growing your order book.
How does Trade Finance work?
Trade finance works similarly to an overdraft, but specifically for purchasing stock. The lender will offer you a facility with a credit limit. You can keep using the facility up to that amount. This is how it would work:
- Place an order with your supplier.
- The lender will pay the supplier once they’ve received shipping documentation or a letter of credit.
- The goods are shipped to you.
- You repay the transaction – you can either repay within 90 days or you can use an invoice finance facility with the same lender.
- The lender recalculates your balance – this allows you to decide if you want to use the facility to make another order.
How do I know if I'm eligible for Trade Finance?
There are some key criteria you need to meet in order to be eligible. They are the following:
- Your business has purchase orders you are looking to fund
- Your business purchases non-perishable goods that can be resold – in the case something goes wrong, lenders don’t want to be stuck with goods that they can’t easily sell to recover their money.
- Ideally, your business has a turnover of at least £100k
What are the benefits of Trade Finance?
Trade finance allows you to avoid having to wait until you have enough working capital in one lump sum to make an order. This allows you to bring your stock in quicker and thus make revenue faster.
It also reduces the time from expenditure to revenue.
Both of these remove strain from your cash flow, which allows you to focus your spending on growth as opposed to chasing your own tail.
Trade finance is a unique option, perfect to unlock extra working capital. If you’re interested in looking at the options available, get in contact with us and let us see what is going to work best for you.