With an import and trade financing line of credit, you’ll have access to the cash you need to pay for supplies when needed.
This finance solution helps facilitate domestic and international trade between you and your suppliers for the purchase of material goods. Import and trade finance works effectively for businesses such as manufacturers or importers who regularly purchase material goods.
With trade finance, you have 180 days to repay your credit. If your supplier’s invoice has credit terms of 90 days, you could draw down the amount from your trade finance line of credit to pay the supplier’s invoice on day 90. You then have 180 days to repay the line of credit. Essentially, you’ve created credit terms of 270 days (90 days from your supplier plus 180 for the trade credit). This means you have the opportunity to receive, develop, mark up and onsell the material goods to your own customers, and record a sale before you’ve even paid for the materials.
Business owners who already have a facility like debtor finance typically will consider if their facility limit is appropriate for their business over the next few years and source the cheapest rates and fees they can.
It’s a great idea to look at these metrics and obtain the best value for money, but a consideration that’s often missed is a review of the finance structure.
Our client came to us with a small trade finance limit of $500,000 with up to 90 day terms and a debtor finance limit of $2M with their existing lender. Looking at their product and cash flow cycle, we identified that a $2M trade finance facility with 180 day terms could be sufficient without the need for any debtor finance facility beyond the initial refinance. With an extra 90 days to repay their trade finance, they no longer needed to bring forward the cash from their accounts receivables with debtor finance.
With no line or service fees and a low interest rate, this dramatically reduced the cost of finance in the business and translated to a forecasted year-on-year savings of $95,000 pa.