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What is trade finance?
Trade finance is a catchall term for a number of financial products which can be used to fund international trading. Trade finance can become complicated as many facets and specialist knowledge is required for an effective product to be sourced for your business, whilst keeping cash flow, expansion goals and meeting deadlines in mind.
This product has many potential variations depending on your business’ specific circumstances but it can be potentially useful for boosting the cash flow of your internationally trading business. Typically funders will use a mixture of options that they deem most appropriate for your business and they will consider invoice factoring, forfaiting, letters of credit and lending.
This financing solution can provide a way to ensure that both importer and exporter are funded throughout the transaction, so your business will always have working capital available to meet its day-to-day obligations.
As trade finance can be notoriously complex involving several products working harmoniously for the service to be effective. We can help you find the funder who has the skills and experience required to not only finance your business’ needs, but provide you with the support needed in this multifaceted area.
How will trade finance work for my business?
Trade finance is a great way to help you obtain the goods you need from overseas without damaging your cash flow. It can also help you to build up trust with clients or suppliers, as both parties will not be forced into a position where you are left waiting months for payment or out of pocket until goods arrive to be sold.
Funders of trade finance look to garner good relationships with both sides and work with you both to provide the service you require by communicating in a range of languages and providing finance in your preferred currency, whilst keeping current interest rates in mind.
Whether you’re importing or exporting, you can benefit from the advantages of trade finance. For example, if you opt for invoice finance, you will raise an invoice which is passed to your funder who pays you a percentage of the invoice value until payment is received from your customer, once they have received their goods.
Trade finance is suitable for businesses which are already trading internationally or are looking to expand their reach into international markets. With a range of trade finance solutions available, get in touch with us to discuss the best option for you based on your business’ needs.
Why should I consider trade finance for my business?
Trade finance is likely to work for your business for many reasons and we will work hard to find you a lender who will be able to offer your business:
- Strong cash flow – Trade finance can help you to improve your cash flow by providing funding between you paying your supplier and you being paid by your customer. This allows you to tender for new business and start work on new orders, as cash isn’t tied up which can help improve supplier relationships, possibly allowing you to secure early settlement discounts.
- Confidence – Steady cash flow can demonstrate your liquidity to suppliers, encouraging them to do business with you. Specialist hedging products can offer you protection against currency fluctuations and when combined with other insurance products, it can reduce the risk of importing and exporting, giving your business the confidence to expand.
- Accessibility – This can be ideal if your business does not have the financial track record or security to negotiate sufficient overdraft facilities or get credit from your suppliers; this can often be vital for new or growing businesses.
- Flexibility – Trade finance can free up existing lines of credit for other business purposes. When using these facilities it is often possible for you to repay bank facilities and release previously pledged security. Some providers may also be prepared to provide finance against other assets, or even unsecured loans, as part of packaged solution.
- Management time – Using trade and invoice finance facilities in conjunction, can free up valuable management time as it allows you to pass the paperwork involved in paying the supplier to your funder (including raising letters of credit) providing you with a cost effective solution for outsourcing your purchase ledger management.
Are there any risks associated with trade finance?
- International markets and currency – Trading internationally can be risky business as it is a very complex area consisting of many businesses, sectors, languages and currencies. It can sometimes be difficult to keep up with the changing international markets and currency fluctuations which can make international trade complicated and problematic.
- Understanding different cultures – Language barriers are not the only issues. It is important to be aware of different cultures and practices. If you are selling consumer goods you may have to order stock early for Christmas but also you need to be aware of holidays, feasts and customs if you are buying or selling abroad. Fortunately, providers of trade finance, payment transfer services and FOREX services can often provide a wealth of information and specialist advice.
- Maintaining control – You will retain complete control over your sales ledger management.
- Circumstances out of your control – Bad weather, sinking ships, lost cargo or the haulage company going bankrupt can all have an effect on your business and its imports/exports. However, most funders take these sorts of issues into account and offer insurance to protect you and your cash flow should the worst happen so it is worth checking that this is including on your agreement.
Why choose us?
Trading internationally is hard work and keeping on top of invoices and maintaining control of your sales ledger can be a challenge. It’s vitally important to stay on top, so that you can maintain a healthy level of cash flow. If you feel as though trade finance could be beneficial for you and help you trade internationally, or it could give you that extra reach into international markets.
Our years of experience in this sector, means that we are perfectly placed to help you in the process of finding trade finance. Trade finance can be confusing, but our experienced advisors will walk you through every step of the procedure and advise you on what’s best for your business.
Some of the partners we work with...
Why Choose Us?
WF Financial Solutions is an independent broker of invoice, asset and trade financing solutions with links to lenders of all sizes and specialties. WF Financial Solutions has helped many clients through the range of lenders and their varying services and are proud to offer advisory and introductory services to finance providers that suit your needs.