In simple terms, Trade finance could benefit any business sourcing goods from overseas, and let’s face it, there is no getting away from the fact that we are a nation of importers and are likely to remain so for some time. It is an essential funding method in India, one of the most vibrant, leading country of the world. Beneficial in maximizing your Domestic as well as International Trading potential while improving cash-flow.
As a result, a major component is the competence for banks to set up security to take possession and sell the goods themselves. If a business feels it is restricted by the lack of available cash flow or working capital then it’s quite possible that a small trade finance facility may provide a solution that will allow the cash flow to become more fluent, helping the business to take on additional orders and therefore eventually increase both its profits and turnover – which is what everybody needs, isn’t it?
How does it work?
Trade finance addresses the cash problem at the front end of a transaction, way before a sales invoice can be embossed and finance provided by a more traditional factoring or invoice discounting route. This allows the supplier to receive payment directly, giving complete confidence that the goods have been paid for and will be shipped. Several Trade Finance companies provide 100% of the funding to a supplier and can also cover duty, VAT and freight costs, effectively taking the entire transaction out of the company cash flow. As SME’s put a lot of work into winning orders and into attracting new customers, so it is essential that this hard work does not go to waste through an inability to then fulfill these orders, and a trade finance facility can ensure that this is avoided and that orders can be successfully fulfilled.
Several measures are their to help you manage risks,win business, negotiate credit terms and trade confidently. All this completely helps in both reducing the burden on your cashflow and in enhancing your skill to trade globally.
What are the key elements to a trade finance facility?
Using the most suitable key elements to facilitate trade with the least amount of risk could contribute a healthy cashflow and profit stream.
- Shipping Guarantees
- Trade Credit Insurance
- Direct payment to your supplier
- Independent investigation of the goods before making the supplier payment
At least 20% of Gross margin must be in a respective transaction. Furthermore the dedicated staff at such companies work with the clients to arrange their transfer Letters of Credit, cash against document requests, performance guarantee requirements and other such trade instruments by using extensive global banking facilities. Thus such companies provide the supplier with the comfort that funds are available to pay for goods once they have been produced and are ready to be shipped.
After reading this, we hope you have gained a more in-depth understanding of what trade finance actually is and how it works, if you believe your business could benefit from a trade finance facility and might have learnt how to explore benefit to your business.
The Cashflow Catalyst 