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​ Is trade finance the new finance on the block?

Estimated Read Time: 2 Minutes

JESSICA LAMBERT , 15 May, 2023

One of our partners, Trade Finance Global have written this article to support businesses who export. It can be difficult to find finance to support your overseas endeavours in business. Often, purchase orders mean payment up front and the logistical upfront costs of moving stock around can mount up. Trade Finance Global explain what Trade Finance is and how it can give you peace of mind when exporting.

Trade Finance Global help businesses access trade and structured finance around the world, as well as being the leading provider of trade finance resources and information.

Many businesses import goods from overseas to sell on to customers. However, in order to benefit mass volume payments and supplier discounts, businesses will often need to pay suppliers up front.

Purchasing goods from overseas often has many benefits:

●      Cheaper to manufacture goods in some markets, including China, India, Vietnam, Thailand

●      Increases the ability to compete on price with other, larger competitors

●      Allows diversity thereby reducing risk of using just one or two main suppliers

●      Establishes a footprint in other market and can open doors and opportunities to new customers

Trade finance a form of commercial finance which helps businesses pay for the trade of goods and services overseas or domestically. Unfortunately, invoice finance is often unsuitable for paying for goods up front as the finished version of these has not yet been delivered to the customer, so businesses often struggle to finance the initial purchase of goods, despite guarantee from the end customer.

How does trade finance work?

Trade finance is essentially the provision of a financial guarantee from a bank which allows the businesses bank to work with the supplier’s bank to guarantee payment once the goods are shipped or delivered to the destination, providing agreed conditions are met.

The businesses bank will issue a Letter of Credit, which is a contract releasing payment to the supplier, offering the supplier guarantee of payment. This means that the supplier can go ahead and produce the goods to ship to the business, in the knowledge that they will get paid. Here’s a Letter of Credit guide which goes into more detail about working with advising and issuing banks.

Trade Finance Video

Trade finance can be beneficial and doesn’t affect existing banking relationships; it’s often a standalone facility which helps importers rapidly grow.

Because trade finance is a secured type of finance, the bank issuing a Letter of Credit will often compete in terms of interest rate (versus a bridging or an overdraft facility).

How do businesses get trade finance?

Speak to a trade finance specialist or commercial finance broker to see what finance options are right for your business. After all, there are numerous ways to fund a business’s cash flow, and this depends on the strategy of the company, current cash position, existing securities, and duration that the funding is required.

When it comes to importing goods though, there are many other considerations. Importing can be difficult, especially when working in different jurisdictions which have different laws. Transporting of goods is also crucial – getting the right shipping insurance, choosing the most appropriate method of transport, and arranging freight forwarding requires time and due diligence to avoid the risk of not receiving your goods as requested. Trade Finance Global have put together their freight forwarding guide which outlines some of the main considerations when importing or transporting goods.


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