What is Trade Finance?

The majority of businesses that purchase goods or services do so on terms. These businesses may then sell these goods either COD (Cash On Delivery – as the retail sector generally does) or on terms (as is commonplace in the construction industry). Either way, there is likely to be a ‘cashflow gap’ which means working capital is required in order to complete the transaction.

This working capital can come in the form of and overdraft, spare cash, or a facility such as Trade Finance.

Trade Finance allows for a financier to make payment to suppliers on behalf of a client. The client may then in turn defer payment to the financier for up to 180 days in some instances. Effectively, they may repay the financier when they receive payment themselves.

In addition to this, some financiers may allow the client to borrow funds based upon the value of current stock on hand.

Some points to note regarding trade finance:

  • It must be supported by security (generally in the form of property or unencumbered assets)
  • It can be used for domestic or overseas suppliers
  • Some providers will require the provision of a ‘Letter of Credit’ for larger overseas suppliers
  • Some providers will allow the facility to be used to pay deposits, some will not
  • It may be possible to negotiate ‘early settlement discounts’ with suppliers in order to offset the cost of the facility

Trade Finance is a cost effective way of managing working capital, ensuring the supplier relationship is maintained (through on time payments), and your end customer is satisfied due to the timely delivery of goods.


To find out more about Trade Finance, and how it may assist your business, contact one of the team at Flexible Capital today.

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