Whether you’re acquiring supplies locally or abroad, your business may face a delay in the supply chain when the supplier can’t extend enough credit to support you as the buyer. Fortunately, there’s a solution: trade finance. It is a financial instrument that helps businesses facilitate the purchase and sale of goods. This is particularly beneficial for international trade, where the distance and differing laws add layers of complexity to business transactions. Today, we’ll ease you into how trade finance works and how it can help keep your Australian business’s supply chain moving.
Key Takeaways of Boosting Supply Chain with Trade Finance
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How Trade Finance Works
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Trade finance ensures sellers get paid before or at the time the buyer receives goods, and buyers can pay down their trade bill in line with the terms of their facility
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Types of Trade Finance
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Various financial products under trade finance include Letters of Credit, Payment in Advance, Payments Against Documents, Import Finance and Export Finance.
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Key Benefits of Trade Finance for Supply Chain Efficiency
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Trade finance improves cash flow, mitigates risks, enables business growth and strengthens supplier relationships by ensuring timely payments.
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Case Study: Trade Finance for a Civil Construction Company
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A real-world example from darkhorsefinancial.com.au, where a $500,000 Trade Finance Line of Credit was provided to a civil construction company. This case study highlights how trade finance can help your business overcome cash flow challenges while boosting its supply chain efficiency.
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How Trade Finance Works
The essence of trade finance lies in its ability to mitigate the credit risks inherent in trade at home or abroad. It provides a safety net for both buyers and sellers. For sellers, it guarantees payment potentially even before the buyer has received the goods. For buyers, it benefits cash flow as their trade facility is paid down over a period time allowing them to turn their goods into sales.
Trade finance can help you manage your business’s cash flow more effectively, especially when you’re dealing with multiple suppliers in different time zones or operating with differing payment requirements.
Types of Trade Finance
- Letters of Credit: Through a letter of credit, a third-party financier guarantees payment as long as the conditions outlined for payment are met. This arrangement mitigates the risk for the supplier and benefits the buyer by ensuring goods are manufactured and shipped before payment is released.
- Payment in Advance: Common in international trade, sellers often request a down payment before manufacturing ordered goods. A third-party financier provides a revolving line of credit to pay the supplier, with the facility terms usually between 90 and 210 days. This payment-in-advance financing option allows businesses to purchase and sell goods before settling the payments.
- Payments Against Documents: In this type of trade finance, a buyer’s financier may require a document or proof, like a bill of lading, that goods have been shipped before releasing payment. This ensures the supplier has fulfilled their part of the deal before the buyer completes the transaction.
- Import Finance: This financing solution helps businesses purchase finished goods from suppliers overseas without dipping into cash. It provides a line of credit sometimes but not always linked to an invoice finance facility, allowing importers to use outstanding customer invoices to fund their international purchases.
Benefits of Trade Finance for Supply Chain Efficiency
Improved Cash Flow
It reduces the risk of non-payment and supply chain disruptions, which is particularly important in international trade.
Enhanced Business Growth
Access to trade finance services can help your business take on larger orders and expand into new markets.
With timely payments to your local and global suppliers, you can foster trust and get more favourable terms in the future.
Case Study: Trade Finance for a Civil Construction Company
Background
A civil construction company working with top-tier clients faced a challenge with suppliers not extending enough credit to support their operations until they received progress payments from their construction projects.
Solution
darkhorsefinancial.com.au secured a $500,000 Trade Finance Line of Credit for the client. This trade finance facility allowed the client to use the credit for all material purchases. When the client received an invoice from a supplier, the lender paid the supplier directly, giving the client 120 days to repay the amount. Notably, this facility did not require property security.
Impact
This trade finance loan solution significantly eased the client’s cash flow challenges. It enabled them to continue their projects without interruption, ensuring cash was available for wages and non-material costs. This approach was crucial in bridging the cash flow gap between outlaying funds for materials and receiving income.
Trade Finance as a Reliable Financing Solution
The case study of a civil construction company highlights how trade finance can be a powerful tool in managing supply chain efficiency. It allows businesses to delay payments for purchases or extend existing credit terms with suppliers. For instance, a business can order goods, have the lender pay the supplier’s invoice upfront, and then repay the finance within an extended period. This flexibility ensures that businesses can continue operations without the stress of immediate payments, enhancing their ability to take on new opportunities and manage supply risks effectively.
Leverage Trade Finance with Dark Horse Financial
If you’re looking to enhance your supply chain efficiency through trade finance, Dark Horse Financial can be your go-to partner. We understand the unique challenges and opportunities in local and global trade and are committed to helping your business reach its full potential. Our trade finance in Australia will help ensure you can pay suppliers on time and enjoy extended credit terms of up to 180 days.
Contact us today and start transforming your supply chain efficiency.
