In the dynamic world of business, spending money to make money is a common strategy, but managing cash and working capital remains a critical aspect of achieving success. Trade finance is a pivotal tool that enables businesses to unlock capital and capitalise on opportunities swiftly. Let’s explore trade finance in more detail!
What is Trade Finance?
Trade finance facilitates the financing of goods or services in both international and local trade transactions. It functions like a line of credit, offering immediate capital access to purchase stock, inventory or equipment. Essentially, trade finance empowers you to make timely purchases tailored to your upcoming needs—whether that’s buying bulk stock in advance for a B2C Christmas rush or acquiring equipment from abroad that can later be refinanced into an asset loan once it’s brought onshore.
Benefits of Trade Finance
Trade finance offers practical solutions to enhance efficiency and support business growth. The key benefits include:
- Timely Payment Incentives: Captures early payment discounts offered by suppliers.
- Cash Flow Preservation: Avoids tying up your business’s cash in offshore goods, which may face delivery delays.
- Economies of Scale: Enables larger orders with suppliers, achieving bulk discounts and economies of scale.
- Ease of Importing Equipment: Simplifies the process of importing and financing offshore equipment.
- Streamlined Procurement: The financier often handles FX transactions, freight forwarding, shipping and customs, which makes the purchase process smooth and efficient.
Trade Finance & Asset Finance
Trade finance is particularly useful for acquiring offshore assets like equipment and heavy machinery. It provides the necessary short-term finance to secure an asset from an overseas supplier, transitioning to an asset finance loan once the asset is in-country. This arrangement allows businesses to enjoy fixed monthly repayments and maintain cash flow while awaiting the asset’s arrival.
Examples of Trade Finance
Here’s how different businesses utilise trade finance to enhance their operations.
- Optometry Chain: A large multisite optometrist chain uses trade finance to buy a substantial volume of frames for retail. This bulk purchasing ensures all locations are well-stocked and benefit from supplier discounts, supporting regular operations including payroll and rent.
- Medical Clinics: Specialist clinics often leverage trade finance as a short-term solution to safely acquire overseas assets, transitioning to asset financing upon delivery.
At Co-Pilot Finance & Insurance, we’re dedicated to ensuring your business thrives and remains financially secure. If trade finance sounds like the right solution for you, contact us today to learn how we can assist.
