What is trade finance?
Many companies involved in the trading of goods and services, especially small and medium enterprises (SMEs), experience periods during which their financing needs exceed their available working capital. This makes it difficult for these organisations to ensure efficient levels of key stock items, for example, or meet other costs within the operational or trade cycle.
While variable cash flow is a reality in today’s business environment, it can be a challenge to manage, especially when a lack of access to funds prevents a company from taking advantage of new business opportunities, meeting its expansion goals or maintaining healthy relationships with suppliers and clients. Periods of weak cash flow can also put a company at risk of damaging its reputation due to late payments, missed deadlines and sub-standard product quality following cost cutting measures.
One solution to the cash flow challenge is to apply for trade finance solutions (also known as stock finance solutions).
What is trade finance?
Trade finance is an asset-backed facility that enables businesses to increase their stock levels without draining the internal funds they need for their other day-to-day expenses, such as salaries, rent, electricity, transport and so forth.
This funding mechanism is ideal for growing businesses that require short-term finance to fund an operational cycle. For example, this extends from the date that payment is made to a supplier until payments is received from the company's customers.
Trade finance solutions are typically used as a layer of short-term finance in tandem with conventional banking finance – providing companies with the extra flexibility they need to drive growth through the purchase of additional stock.
Why apply for trade finance?
This funding mechanism can provide businesses with many benefits, which vary according to their unique operational needs and business sector. However, common advantages include the ability to:
- Boost sales of existing product lines and develop new ones.
- Gain purchasing advantages by buying in larger quantities or receiving purchase discounts through prompt payment of suppliers.
- Respond quickly to increased demand, with cash in hand to capitalise on special opportunities, handle emergencies and weather seasonal peaks. (Costs here are only incurred when the facility is accessed.)
Ultimately, these benefits allow companies that are leveraging trade finance to be more efficient, productive and profitable. It also enables them to build stronger relationships with their suppliers, customers and other stakeholders, which improves their reputation in the industry.
What are the broader benefits of trade finance?
It is important to note that trade finance solutions do not only keep importers and exporters in business, but also play a key role in fostering trade around the globe.
According to the World Trade Organisation (WTO), around 80-90% of world trade depends on trade finance, mostly of a short-term nature.1
Considering the fact that so many organisations are taking advantage of this financing strategy on an international scale – local businesses may be wondering who to contact when seeking trade finance solutions.
Why select Merchant Factors as your trade finance partner?
Merchant Factors was founded in 1988 to offer companies an alternative to traditional bank loans and overdraft facilities. Trade or stock finance is one of the funding mechanisms that we offer our clients, for both local procurement and imported products. We make local payments by electronic funds transfer, or through the establishment of a local letter of credit or guarantee.
We understand that every business cycle is unique and we therefore carefully develop our trade finance solutions to suit each client’s organisation. Each payment made by Merchant Factors on behalf of a client will have an agreed repayment date; and this is chosen in line with your working capital cycle, which provides you with sufficient time to receive the goods, sell them and collect the cash from the sale or through the debtor created by the sale.
In addition to trade and stock finance, Merchant Factors also offers invoice finance (or factoring), bridging finance and business rescue finance.
One of the chief advantages of partnering with us is the fact that our independence – and our ethos of entrepreneurial and innovative thinking – enables us to offer you the fastest turnaround time in the industry from application to pay-out.For more information on how our trade finance facilities work; or for more fast, flexible financing solutions – contact Merchant Factors today.
Merchant Factors' bridging finance solutions help you to access funds when your current cash flow is tight. Merchant Factors can tailor a bridging finance transaction to suit your unique situation. Contact us today.
Finance beyond the Numbers.