International Trade Finance Explained
There are a number of ways that specialist trade finance companies can help your business. In many cases a complete funding solution is available which might not be available from the banks. A business that has a requirement to import goods maybe able to obtain funding providing that they have confirmed orders for their goods.
For example if a wholesaler is importing televisions but doesn’t have the cash to buy the televisions from the foreign supplier and provided the wholesaler has orders for the TVs in the UK a complete funding package will be available. An import facility is provided for the wholesaler to import the TVs. As soon as they hit the UK and are dlivered to the end customer an invoice is raised as per usual providing however many days credit. The wholesaler will then factor that invoice with the same finance company to repay the trade element of the facility providing a dovetailed finance solution.
This is slightly different from how the banks work that don’t look to be repaid from a factoring or invoice discounting facility but from the sale of the goods at some point in the future. The banks way of doing things is slightly more risky and as such they will look to support business that are only profitable, with a strong trading history and a proven track record.
The dovetailed solution poses a less of a risk to a finance company as they keep control of the transaction from start to finish. Although these facilities may be more expensive than a bank they enable businesses that have no track record or are even new starts or have very little cash to obtain import finance.
Tags: Factoring, international trade finance, invoice discounting