What is trade finance?

What is trade finance?

Trade is the life-blood of any economy. But for many companies involved in trade there comes a day when poor cash flow restricts business.

There several reasons why this happens. Some firms that export goods are required, by the importers, to trade on open account terms. This means that many weeks or months can pass before the exporters receive payment for goods delivered. When you think how long it can take to process the goods in the first place, working capital can be in short supply. With little cash to fund the next operational cycle, an exporter’s business may not grow at the pace it should.

What is trade finance? Can it solve this problem?

Trade finance is used to describe a range of different finance facilities used by importers, exporters and domestic traders. This type of business finance is typically short-term and related to a specific transaction.

According to the World Trade Organisation (WTO), 80 to 90 per cent of world trade relies on trade finance, in the form of trade credit and insurance/guarantees. This goes to show how vital this type of finance is in keeping trade flowing and economies growing.

What is trade finance used for in South Africa?

This working capital solution facilitates the buying and selling of products. Often, trade finance is used to bridge the gap between the purchase of product and payment by the end customer.

What is trade finance able to do for your business?

There are a wide range of benefits that companies access when they receive a reputable trade finance facility.

These include the ability to:

  • Step up sales and increase profits
  • Access the funds required for expansion or to invest in new stock. This is achieved without compromising equity or control
  • Channel funds towards the development of new product lines
  • Buy in larger quantities and access purchasing advantages
  • Pay suppliers promptly and ask for purchase discounts
  • Take advantage of special opportunities
  • Manage emergencies effectively
  • Weather seasonally high or low demand

Because the business is in a better cash flow position and is able to harness these benefits, it will be able to increase its competitive advantage in the marketplace. The business will also be able to maintain positive relationships with suppliers and customers.

Choosing the best trade financier

If you are looking for a trade finance solution that is tailored to suit your company's cash flow cycle, Merchant Factors has the expertise and flexible approach required to meet these objectives.

Merchant Factors can provide trade finance facilities for both local procurement and imported products. Each payment made on your behalf – by electronic funds transfer, local letter of credit or guarantee – will have an agreed repayment date. This is set according to your company’s unique working capital cycle. This allows sufficient time to collect the cash from the sale or through the debtor created as a result of the sale.

The firm can also assist with debtors residing in other countries. This requires the relevant debtor cover/insurance to be in place. While Merchant Factors does not offer insurance products, their partnerships within this sphere allow them to put you in touch with the correct people.

During the facility's life, Merchant Factors will work closely with you and require monthly financial reporting. Beyond providing funds, Merchant Factors also provides expertise to keep your company operating smoothly.

Are you looking for a trade finance solution that can take your business to the next level? For fast, flexible trade finance solutions – contact Merchant Factors today.

Finance beyond the Numbers.