Trade Finance – the New Finance Trend

February 8, 2021 | No Comments on Trade Finance – the New Finance Trend

Trade Finance is a business finance strategy, where a lender pays your suppliers – providing your business with more time, flexibility and cashflow benefits.

Traditionally, it was a solution only offered by the major banks. Products tended to come with strict bank covenants and restrictions. Now, however, there is a growing range of lenders in Australia who are providing Trade Finance products and offering businesses more choice and flexibility.

That’s why Trade Finance is grabbing the attention of both SMEs and large public companies – especially those facing new business conditions or challenges.

In this article, we’ll look at how Trade Finance works – and how it could benefit your business.

Firstly, what is Trade Finance?

Trade Finance is a form of lending used to pay your local or overseas suppliers. Examples might include fuel payments, trade creditors or labour hire agencies. The lender pays your supplier on time and you then pay back the lender – even up to 180 days later. This effectively gives you the benefit of extended payment terms.

The result? Prompt payment and a better relationship with suppliers, who may therefore offer you better discounts or terms. You get an improved cashflow situation, with less worrying about being chased for payment.

Lenders also find it attractive, as they have the confidence that funds are being paid directly to suppliers, rather than potentially being used in other areas of the business.

With the right Trade Finance product, you can get your business into a growth cycle and generate higher profits.

Pandemic driving interest in Trade Finance solutions

Trade Finance is a great tool for providing additional flexibility. Many businesses need this right now. Government support during the Covid-19 pandemic, like JobKeeper, is being switched off, but businesses still face ongoing expenses – like the December quarterly BAS lodgement soon becoming due.

As the economy recovers from lockdowns and travel bans, businesses need liquidity to survive. Re-assessing funding options should form part of every company’s annual strategic planning.

More benefits for international transactions

Trade Finance is also a major positive for businesses that trade internationally.

Firstly, using a Trade Finance provider helps de-risk international transactions. You can use the lender’s platform, making payments more secure. You also get access to their market intelligence and the ability to transact in multiple currencies.

Trade Finance can help export businesses overcome the cashflow crunch they experience when expanding into new markets. Likewise, it’s a great way to build a good reputation with upstream manufacturers or suppliers in locations that your business hasn’t previously operated.

That’s why, with no end in sight for the ongoing China trade dispute, Trade Finance has become a useful tool for businesses that are reducing their reliance on Chinese manufacturers or diversifying their exports into new markets.

Helping businesses unlock a range of benefits

The advantages of Trade Finance can also make it an attractive solution for a wide range of scenarios.

It’s suitable for a range of industries – any sector where there is a mismatch in timing between funds coming in and going out. That’s why it’s especially useful for businesses that experience seasonal fluctuations in cashflow.

Trade Finance facilities are “come and go”, with no lock-in contracts or non-use fees. They are easy to manage and don’t require any personal security. The lender won’t interfere in your supplier relationship and it’s an option that can work well in tandem with other types of finance (such as Receivables Finance).

With all these benefits, it’s easy to see why there’s growing interest in Trade Finance.

Ready to explore Trade Finance for your business?

PFBS are leading experts in Trade Finance. We can help you select and negotiate the right Trade Finance facility, with a lender that ticks all your business needs.

To get started, simply call us now at PFBS – Australia’s Working Capital experts.

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