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Trade finance explained

Wednesday, February 16th, 2011

Trade finance provides the ability for a business to purchase wholesale goods on credit awaiting sale of the goods and therefore payment from the end user. There are several  types of trade finance and this article tries to explain the differences which should help you decide which product or type of business is best for your business.

Firstly traditional high street banks provide trade finance based on the strength and performance of the business. We call this balance sheet lending and is based purely on the profitability and track record of your business It is more often than not nothing to do with the value of the goods you are purchasing and the security that they offer.

Secondly certain factoring and invoice discounting companies provide trade finance facilities on the back of an invoice finance facility however the goods in this instance must be pre sold. For example if you were inmporting Plasma TVs from China and you had an order from Costco for example it might be possible to obtain a complete funding solution. The factoring company will provide you with an import facility to purchase the TVs. On delivery of the TVs to cost and on raising an invoice a factoring facility will provide a further funding facility until Costco pay within the terms of the invoice. As factoring will only fund 80% of the end invoice the mark up on the imported goods must be at least 20% otherwise the invoice finance facility will not repay the trade facility.


XL Business Finance Ltd is a privately owned and independent business financing company with established links to many of the UK's leading finance houses. XL Business Finance provides a viable alternative to high street banks that lack the flexibility and imagination to provide a solution to most business users requirements. XL Business Finance can provide a full range of business financing solutions and we ensure a high level of customer service and pride ourselves on quick decisions. Our independent status will ensure any offer of funding and asset finance leasing is best suited to our customer’s needs.

XL Business Finance Limited are authorised and regulated by the Financial Conduct Authority FRN 718737).

XL Business Finance, Eaton Place Business Centre, 114 Washway Road, Sale, Cheshire M33 7RF UK.


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