TRADE FINANCE.

It’s never been easier to trade across international borders — whether your business imports or exports goods, trade finance could help you expand your reach. But doing business internationally can create cashflow difficulties, so lots of businesses look to finance their plans. Many lenders only lend to UK businesses that trade domestically, which means as soon as you’re trading internationally, it can get much more difficult to get finance. That’s where specialist trade finance comes in.

What is Trade Finance?

Trade finance is a broad term that refers to any finance which allows you to trade internationally. It's a form of working capital finance, the same family as invoice finance and supply chain finance. While there are differences, they are all set up to help you bridge working capital gaps in the supply chain. Trade finance is sometimes called ‘import finance’, ‘export finance’, or ‘supply chain finance’, because you get a finance partner for the whole supply chain rather than just one part of it.

In a nutshell, the trade finance partner acts as an intermediary between your business, the manufacturer, and your end customer, funding the transactions throughout the process — so you can do cross-border business without needing a large reserve of working capital. Trade finance generally works on a confirmed order basis, so if you’ve got a purchase order to fund and you want to import or export products for resale, a trade financier will fund the transactions. In this sense it’s a type of working capital finance set up specifically for international trade.

Is Trade Finance right for me?

There are two key questions to ask to find out if trade finance can help your business:

• Have you got a purchase order you need to fund?
• Do you want to import or export products for resale?

If the answer to these questions is yes, trade finance could help you grow your business. And trade financiers aren’t as concerned about what’s on your balance sheet as mainstream lenders — what they really want to know is: "what’s the transaction, how much will it grow your business, and who else is involved?" Trade finance is generally for companies that have good supply chains and end-buyers, but don’t have the working capital to go it alone. Here’s a simple example of how trade finance works in practice

Trade finance example:

Joe’s Clothing Company has been selling clothing in the UK for a few months and the brand is getting popular. Joe’s products are spotted by a major department store in Australia, who place an order for 1,000 pieces. But Joe has only been selling a fraction of that amount per month in the UK, and doesn’t have enough cash in the bank to pay the manufacturers for such a big order.

The manufacturers and the department store are both well-known, creditworthy companies, so Joe approaches a trade finance company. The trade financier looks at Joe’s purchase order from the department store, and carries out the standard due diligence like looking into Joe’s credit history. Once they’re satisfied they’d like to work with Joe, they order the products from the manufacturer.

Once produced, the products are shipped to the department store in Australia, and the manufacturer invoices the trade finance company. Then, once the department store pays the trade finance company, Joe gets the profits minus their fees.

How can trade finance help my business?

In the above example, trade finance would be equally suitable if Joe’s manufacturer were based overseas and his customer (the department store) were based in the UK. Either way, credit is being offered across international borders, and that’s where trade finance can help.

In both cases, the trade financier acts as liaison between the supplier/manufacturer and retailer/end buyer, which means Joe can grow his business without needing a big reserve of working capital — whether he wants to import, export, or both. Trade finance can also sit alongside any existing finance your business has, like invoice factoring or asset finance.

Disclaimer:

Keonie Global Traders helps Local and International firms access business finance, working directly with businesses and their trusted advisors. We are a brokerage firm and do not provide loans ourselves. All finance and quotes are subject to status. Guarantees and Indemnities may be required. Keonie Global Traders can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Keonie Global Traders may receive a commission or finder’s fee for effecting such introductions.