What is Trade Finance?
Have you ever had to turn away business because you couldn’t afford to fund it?
When you sought funding did the bank ask for mortgage security? Were they able to establish a facility quickly for you?
The best financing options available for your business may not be the traditional obvious ones. Trade Finance (also referred to as Purchase Order Finance, Supply Chain Finance or Import Finance) can offer the flexibility businesses need without the pitfalls associated with traditional forms of finance and has become a key tool in financing inputs for many businesses.
How trade finance works:
Trade Finance establishes a revolving line of credit to pay your suppliers – using someone else’s money to settle your accounts payable. This assists growth while smoothing any cash flow volatility and lets you focus on closing sales rather than worrying about financing them. It functions in the following way:
- You place an order with your supplier (who may be in Australia or overseas) for a product or service and the supplier issues an invoice to you.
- You then have to pay that invoice within the terms outlined by your supplier (anywhere from 1 to 90 days).
- On the invoice due date – instead of dipping into your cash reserves to pay the invoice, you submit the invoice your Trade Finance provider who then pay the supplier on your behalf.
- You pay back your financier within an agreed time period
Why trade finance:
- Obtain early payment discounts – suppliers often offer a discount to early paying customers, particularly overseas ones.
- Smooth your cash-flow cycle.
- Fund your business without mortgaging your house.
- Works seamlessly with other forms of finance.
- Interest free terms.
Trade Finance Case Study:
Moneytech currently helps a wide range of businesses throughout Australia with trade finance, with a particularly strong presence in the pharmaceutical, IT, communications, alcohol, stationery, coffee and fashion industries.
One of Moneytech’s existing clients; an Australian stationery wholesaler that sources its products internationally, has benefited from Moneytech’s Credit Express Trade Finance product.
The client’s products are sourced from both China and Taiwan. A major challenge is financing the purchase of stock for seasonal sales rushes such as the ‘back to school’ period. Inventory costs must be paid in full for the January rush up to 3 months early. Unfortunately this large expense coincides with one of the businesses quietest sales periods and is therefore one of the most financially challenging times of year.
Prior to using trade finance, savings measures had to be put in place for months leading up to October just to meet the demands of existing clients. This restricted the businesses ability to grow and cost the business revenue via missed sales opportunities.
Moneytech was able to provide a Credit Express Trade Finance facility that allowed the client to focus its effort on increasing sales and improving its supplier relationships, safe in the knowledge that the funding was already in place to support the purchases.
Moneytech’s Credit Express:
Moneytech has been providing trade finance to Australian businesses almost 10 years. Its Credit Express is a market leading product with all of the benefits of a standard trade finance facility, however with the following additional benefits:
- Seamless integration with our foreign exchange partner, 360 Markets who are consistently able to offer rates better than the banks.
- Access to our online banking platform, the Moneytech Exchange which provides customisable reporting and real time cash settlements.
- Pay deposits or pay to your suppliers trading terms, rather than the terms dictated by your Trade Finance provider – Moneytech doesn’t mind.
- Ability to pair your trade finance facility with our debtor finance, payment processing, and terminal product offerings.
Trade finance is becoming an increasingly popular option for small to medium businesses as it provides a flexible and relatively inexpensive way to smooth cash flow volatility and focus the businesses income on growth. If you would like to understand more about trade finance please contact one of Moneytech business finance specialists on 1300 858 904 or learn more about our Credit Express product.