Trade Finance
Trade finance is a crucial tool in paving the way for international business. Not only does it open the opportunity for risk mitigation, it offers importers a solution to cash flow challenges and exporters the required capital to fund their expansion.
Import Finance
The goal of import finance is to improve the purchasing power of importers by giving them the option to defer part or all of their purchasing costs until they realise a profit from sales.
The goal of import finance is to improve the purchasing power of importers by giving them the option to defer part or all of their purchasing costs until they realise a profit from sales.
Import finance is frequently combined with a letter of credit arrangement to simultaneously offer the importer both greater flexibility and protection against risk factors.
In simple terms, here’s how import finance works.
The buyer will apply for an import finance transaction with a finance institution. Once approved, a letter of credit or telegraphic transfer will be initiated and the seller will produce and ship the ordered goods.
The seller will be paid by the buyer’s bank and an import bill will be created.
Once the goods are cleared and reach the buyer, the import bill will be repaid from debtor finance proceeds. The buyer can then clear the debtor finance on agreed terms.
Letters of Credit
When a buyer (the importer) wishes to purchase goods from an exporter, they’ll approach their bank with a purchase order. Provided they’re creditworthy, the bank will then issue a letter of credit.
The exporter’s bank will then request the letter of credit from the buyer’s issuing bank. Once the letter is received and its terms verified, the exporter’s bank will clear the exporter to ship the goods.
On receiving the shipping papers, the exporter’s bank will issue payment to the exporter. The shipping papers will then be forwarded to the importer’s bank and payment will be requested from the importer.
Export Finance
Export finance is often offered as part of a comprehensive package of services, known as export factoring. With this package of services, rapidly available export finance is provided against invoices. Additionally, collections and international bookkeeping services can be built into an export factoring service, making it an excellent option for SMEs just starting out with exporting.
Key benefits:
- Funding against completed sales to overseas customers
- Make it easier for customers to buy from you; offering open account terms
- Flexibility to raise invoices in AUD, NZD and USD to customers in over 20 approved countries
- International trade support from our specialist Trade Finance team
- Independent checks on new and existing overseas customers
Supply chain finance
Supply chain finance is the opposite of debtor finance. Instead of financing the invoice’s owed to you, with supply chain finance you are financing the invoices you owe to suppliers in order to negotiate an early payment discount with your supplier.
Eg: A cabinet maker needs to make 10 cabinets. He doesn’t get paid until he has supplied the 10 cabinets. He needs to order the materials to make the cabinets. He wont be able to pay for the materials until he is paid for the 10 cabinets.. So in this situation he could use Supply Chain Finance to purchase the materials and get them 10% cheaper because he is paying upfront & he doesn’t have to pay back the funds until he is finally paid for his 10 cabinets.
