Trade Finance

Trade Finance is a term for the provision of finance in order to enable goods to be purchased in order to satisfy an order. Finance is provided by the trade financier to bridge the funding gap between purchase and sale. Trade financiers specialise in helping companies achieve the growth that is so often in their potential but beyond the scope of traditional financiers i.e. banks.

Trade finance is beneficial for companies that are involved in importing and exporting goods. It is becoming an increasingly popular method of finance for companies that are unable to access funds from high street banks due to what is perceived to be a lack of security. Trade finance normally works alongside existing credit lines such as bank overdrafts and factoring. The general term of 'trade finance' covers the following types of facilities:

1. Purchase ( Stock) Finance
2. Export VAT finance
3. Letters of Credit
4. Invoice finance/ factoring

The preconditions for a facility to operate successfully are quality goods from a reputable supplier, sold to a creditworthy customer. The other paramount matter is transaction security. The trade financier will be focused on working with you to ensure that each transaction is safely concluded. The financiers' can also help you:

1. Negotiate conditions of purchase
2. Negotiate and document conditions of sale
3. Arrange and pay for carriage, insurance, VAT and Duty

Banks raise Letters of Credit (LCs) for their customers, but generally require cash or security to cover the majority of the transaction. But a trade financier looks at the transaction in the same way as an importer. If they are happy, then the transaction is their primary security. The main areas to consider when applying for trade finance are:

1. Relevant experience of the management team
2. Type of goods e.g non- perishable
3. Status of order book
4. Ability to obtain title to the goods
5. End customers' ability to pay
6. Overall security of the transaction
7. Profitability of transaction (s)