November 21, 2022 4:43 PM

how trade finance can unlock cash flow for SMEs

According to a recent Asia Development Bank Study, the global trade finance gap reached USD1.7 trillion in 2020. Driven by COVID-19 lockdowns and restrictions, supply chain disruptions persist due to material and product shortages and the time it takes to scale production amid the current macroeconomic challenges. While large enterprises may utilise institutional funding to bridge cash flow gaps, SMEs can find it more difficult to access the funding they need from traditional channels.

Trade finance can help SMEs release capital locked up in unsold stock and trade orders while addressing supply chain risks, which is critical in an uncertain economy. Further, SMEs with a strong sales pipeline who don’t satisfy the stock-standard credit assessment criteria of the big banks can leverage their strong performance to access trade finance. This article outlines how trade finance can unlock cash flow for SMEs. Keep reading to learn more.

what is trade finance?

Trade finance is the umbrella term covering the wide range of financial instruments that businesses use to facilitate trade. These instruments help SMEs to unlock cash flow and address the supply chain challenges they may be facing without the need for personal property security or taking on long-term debt. Without trade finance, most of the world's trade and commerce, especially international, would come to a standstill. This is because importers and exporters often have divergent needs and their own cash flow priorities. Trade finance bridges this gap, resolving challenges for both parties.  

how does trade finance work? 

To facilitate trade finance, a third party is introduced to one or many transactions. This third party provides funding to remove payment and supply risks. Whether you are an importer or exporter, trade finance can help you by providing credit:

  • in accordance with receivables or contract agreements; or
  • or to fill trade orders.

One of the key differentiators of trade finance from other business lending solutions is that the need for it doesn’t necessarily indicate solvency or liquidity issues. Its primary purpose is to address common trade and supply chain risks, including currency fluctuations, geopolitical instability, non-payment, and the creditworthiness of the transacting parties. Your repayments will vary based on the specific trade finance solution you access. Some of the most common types of trade finance instruments include:

  • Line of Credit: A revolving facility you can draw down from as needed.
  • Letter of Credit: The financier provides a guarantee for the buyer’s payment to the seller. Payment isn’t made unless the contract terms are met, so both parties must meet their obligations for funding to be released.
  • Factoring or Invoice Financing: A company is paid a percentage of their accounts receivables, and the financier assumes the financial risk.
  • Working Capital Loan: Issued to suppliers and exporters to fulfil orders. 

The type of trade finance solution you choose will depend on your unique needs and whether you’re looking for short- or long-term funding. With the potential to bridge cash flow gaps on goods that can take weeks (sometimes months) to arrive, trade finance is a smart way to ensure your valuable capital isn’t locked up. This will help you to keep your business operating while providing you with the cash flow to take advantage of other growth and investment opportunities that may arise while you are waiting to receive or deliver trade orders.

is trade finance the right business funding for you?

If you own or run one of the many Australian SMEs that rely on the timely receipt of products to deliver your goods and services to customers, trade finance can be a good way to address financial and supply chain risks. Whether you need a line of credit as a long-term solution or financial products that will remove the risk of specific transactions, trade finance will unlock your cash flow and address your unique funding needs. And with repayments due up to 120 days after receiving funding, in some cases, you can use the revenue generated in this time to fund these repayments. 

unlock cash flow with moneytech’s trade finance solutions

Moneytech’s trade finance solutions help SMEs unlock cash flow while addressing supply chain risks. With our solutions in place, you don’t need to tie up capital in orders that can take weeks (or months) to arrive. Instead, our trade finance solutions remove the risk from transactions, whether you are the buyer or the seller. We offer competitive rates, up to 120 days repayment terms on credit line drawdowns, re-draw facilities and access to Moneytech’s Foreign Exchange account. 

Moneytech makes securing working capital and managing cash flow simple. Whether your business is looking to release cash flow locked up in stock held or on order, or you want a safety net to protect against supply chain risks, we can help. Contact us today, and one of our experts will be in touch to discuss your options.



This article is for information purposes only and does not constitute financial advice. You should speak to a qualified finance professional about your unique situation before making any decisions about financial products.


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*This information does not take into account your personal objectives, circumstances or needs. Consider its appropriateness to these factors before acting on it. Read the disclosure documents for your selected product or service before deciding whether to purchase them. ABN: 24611393554