Introducing import or export trade into your operations helps you to strengthen your business. It enables you to take your products and services to a global market by exporting to customers overseas and improve your supply chains through importing.

There are costs associated with importing and exporting that can make it hard to access for some businesses and increase concern for those who have not done it before. However, the pay-off usually makes it worthwhile.

Trade finance is a solution to the funding gap between importing and exporting. This blog explores the benefits of trade finance and why you should utilise it in your company.

1. It’s available to everyone

One of the main advantages of trade finance is that it is accessible to almost everyone. Unlike some forms of external funding, you do not need to jump through numerous hoops to be deemed eligible, which will alleviate concern for any businesses that have struggled to get finance previously.

You just need an order in place (from a customer overseas if you export or a UK order you will fulfil with imported supplies).

With improved accessibility, there’s little excuse for any business not to pursue global markets. 

2. It fuels growth

Being able to export means you are able to target customers worldwide with your products. If done effectively, you will drastically increase sales and revenue across your business.

With increased revenue comes growth. It fuels any plans for expansion while building a reputation in other parts of the world that may prove essential if you wish to gain a global presence.

Similarly, if you import, you will improve your supply chains, enabling you to potentially improve the quality of your products or more readily meet demand to maximise your sales potential. 

3. It grows with your business

Alongside helping to fuel expansion, trade finance grows as your business does. Due to the order-focused nature of the funding, the more orders you have, the more capital you can access.

If your products or services are gaining traction in overseas markets or you receive more domestic orders to fulfil, you are able to secure more significant funding. This further enables productivity and minimises the financial risk posed. This reduces any barriers that might stall output.

The added benefit is the loan given takes into account the prospects of your company (i.e. the customers you will serve) rather than past financial history so that you won’t be held back by old issues.

4. It reduces risk

There is a degree of risk associated with trade. In the case of export, a business may be expected to fulfil an order, at an increased administrative cost, without having yet received customer payment. With imports, you may find it hard to cover the price of overseas supplies while you await payment from your UK customer.

If you’re new to trading, the exposure will cause concern, especially if you are left with cash flow pressures or other resulting detriments.

As trade finance endeavours to bridge the financial gap between importers and exporters, the risk is reduced for all parties. This means everyone gets paid promptly, removing the strain as the sales cycle closes.

It, therefore, makes trading more attractive to businesses and reduces any financial fears that could deter you from importing or exporting.

5. It improves productivity

By closing the gap between importer and exporter, trade finance drives productivity.

Without a solution in place, a business might have to wait for customer payment to clear before purchasing the materials needed to fulfil an order. Similarly, someone looking to import may be unable to afford to pay their supplier up-front until their customer has paid them – and the supplier will be in a similar position, unwilling to send goods until they’ve been paid.

Both scenarios could drastically elongate turnaround times for orders. It makes it hard to get the job done while also creating a poor experience to the end customer, who is likely looking for as fast a delivery as possible.

As import and export may already be blighted by longer delivery times and delays stemming from bureaucracy or other influences outside of their control, nobody wants to add more obstacles into the mix.

With trade finance, work starts immediately. The business accesses the supplies they need and cover the associated costs. Timeframes are reduced, enabling maximum productivity, improving SLAs, and consistently meeting customer expectations. 

6. There are limited costs involved

Unlike other forms of funding, there are limited costs involved with trade finance. Interest typically varies between 2% and 3% per 30 days.

The larger the order you are receiving funding for, the lower the interest rate is likely to be.

You may also seek credit protection, which protects your business if your customer does not pay. The additional risk will increase the overall cost but offers valuable peace of mind.

7. It improves cash flow

Another advantage of trade finance is that it removes the cash flow burden associated with trade and makes it more affordable.

If you send an invoice when you deliver an order, you might expect to wait between 30 and 90 days to get paid. The gap is even bigger with export orders once you factor in when you placed the order and delivery times. In the intermittent period, you will have paid out the funds to your supplier, which will have knock-on effects on cash flow and present other obstacles.

Trade finance eliminates the issue and keeps things flowing smoothly. It is also used in conjunction with other short-term loans, such as invoice finance, to ease cash flow further and improve your financial situation.

Conclusion

Introducing import or export trade into your business has many rewards, including maximising sales potential, strengthening supply chains and opening new opportunities. However, there are considerations you need to make first – most prominently, how you will handle the financial element involved.

Import and export finance aims to make trade simpler. By utilising funding, you close the financial gap involved with importing and exporting and make it more accessible for your business.

This enables you to reap the benefits while maintaining positive cash flow, reducing risk and driving productivity.

If you wish to utilise trade finance in your business, we work with you to find the appropriate lenders for your import and export needs. Get in touch today to find out more.