Trade Finance – helping facilitate trade.

Funding a business isn’t always as straightforward as it seems. There are various types of finance options on the market to support business owners looking to access a funding solution to suit their needs. Depending on your requirement, some may be more suitable than others. One particularly useful funding option but less commonly known is Trade Finance. In our latest blog we explore what it is, how it works and how it could help your business?

Why Trade Finance?

For many businesses, expanding your trading landscape is critical for growth. Whether that growth is domestic (UK based) or internationally, it can pose both challenges and risks, which can disrupt your business. Finding an affordable funding solution that enables you to purchase goods whilst ensuring you get paid on time is vital but can be difficult to navigate. Trade finance is a viable financial tool for this type of situation, but it can also play an important role in mitigating both the challenges and risks that you may encounter as you expand.

What is Trade Finance?

When buying goods from a supplier you will often be faced with having to pay for the goods before you receive payment from your customer - whether your supplier is UK based or overseas. This can cause cashflow issues which may prevent you from buying the goods in the first place. Trade finance can help by providing upfront funds against confirmed orders to facilitate the purchase of those goods. Trade Finance consists of many parts A trade finance package can consist of a variety of products to make it work effectively:

• Trade Finance – Funding is provided against confirmed orders allowing the seller to confidently purchase product from their supplier knowing they can fulfil their order.
• Credit insurance - This provides business owners with peace of mind that they are covered should they suffer a financial loss as a result of trading either internationally or domestically. It protects against various risks, such as non-payment, political instability, and natural disasters. Having credit insurance gives business owners, the confidence to expand and or explore new markets with confidence.
• Invoice Finance - Invoice Finance enables businesses to access immediate funding by selling their outstanding invoices to an Invoice Financier. They receive up to 90% of the value of the unpaid invoice with the remaining 10% paid when the customer pays. It can be beneficial for sellers who need to bridge the gap between the time of shipment and the receipt of payment by improving their cashflow.

How Does it Work?

Trade Finance provides funds against the value of a confirmed order meaning the seller can purchase goods knowing they have the funds to pay for them and can distribute the goods to their customer (the buyer) when ready. For the buyer, they may then benefit from normal credit terms to help make the purchase happen and support their cashflow. It essentially removes both the supply and payment risk by involving a Trade Financier.

What are the Risks and Challenges with international trade?

Trading internationally poses many potential risks and challenges: • Political Risks: Political uncertainties, economic sanctions, and trade disputes between countries can disrupt trade flows, prevent payment and impact business activity.

• Currency exchange rate fluctuations: When conducting international trade, Businesses need to be aware of the risk of currency value changes, which can impact the cost of goods, profit margins, and overall financial stability.
• Compliance and Regulatory Requirements: If you are trading internationally then there will be many regulations and compliance requirements that you need to adhere to, which can create legal and operational challenges for your firm.
• Credit risk: There is always a risk in business that your buyer will not pay for the goods you have delivered to them, but this can be exaggerated if the buyer is overseas?

The Benefits

Trade finance offers several key benefits that facilitates trade and supports business growth:

• Enhanced Cash Flow: Trade finance provides firms with access to working capital, allowing them to fulfil orders or pay for goods upfront and expand their operations without being limited by their cash flow constraints.
• Risk Mitigation: As a financial tool it can include insurance to protect against various risks associated with international trade, such as non-payment, political instability, and currency fluctuations.
• Increased Trade Volume – Trade Finance delivers the necessary credit line to enable businesses to enter larger transactions or enter new markets. It also contributes to the overall economic growth by promoting international trade and investment.
• Supply Chain Support: Trade finance allows businesses to support their supply chains by ensuring timely payment to suppliers, even when the buyer hasn't yet paid.
• Flexibility: With trade finance, businesses can negotiate better terms, knowing they have financial strength behind them to manage payments.
• Competitiveness: Businesses can compete more effectively across markets with enhanced working capital and credit insurance in place to manage risks.

Supporting UK businesses

Pulse Cashflow Finance support many businesses through the provision of our Trade Finance solution. We enable you to fund the upfront purchase of finished goods from overseas or UK suppliers for sale to either overseas or UK customers. It is an easy-to-use funding solution that bridges the gap between paying suppliers and receiving payment from customers. Our Trade Finance facility must be used in conjunction with our Invoice Finance facility, so you benefit from an additional cashflow boost ensuring that your business has the available working capital it needs.

For more information contact us on 0845 539 7003.