A trade finance company will pay your supplier, effectively purchasing the goods on your behalf and you will repay them from the sale of those goods. Despite their involvement, you will still be responsible for the goods as you be if they weren’t involved. You will be required to service the interest monthly while the transaction remains open.
As repayment hinges on a sale to your customer, a potential lender will want to be certain that there’s a good level of demand for the product that you’re asking them to finance. The best way to do this is with a confirmed purchase order from your customer, however this isn’t always available and a proven sales history is just as good.
Some of the key things lenders will look at are:
The main costs with trade finance are the arrangement fee and the interest rate:
The rate can appear expensive if you look at it over 12 months, however a trade finance transaction should never take that long to complete. Most trade cycles, from buying the goods from your supplier to selling them to your customer, are done in 90 days or under. The interest rate should be viewed in this context and on a transaction-by-transaction basis.
A trade finance company will want to make sure that there’s a sufficient gross profit margin in the deal to cover their fees i.e. the interest rate. Obviously this will depend on what the interest rate is and how long the transaction will be open for but as a guide you will need a minimum 20% gross profit margin.
There is nothing more frustrating for a business than having to turn away good orders because you don’t have the cash flow to finance them; with trade finance this needn’t be an issue as the trade finance company will purchase the goods on your behalf.
Not only can you forget about turning orders away but with the backing of a trade finance company you can take on larger orders than ever before and grow your business off the back of it, ultimately resulting in more profit for you.
Another benefit is if you’re dealing with a new supplier on the other side of the world, they might not have heard of your business which means they might be cagey when dealing with you, however if you have the backing of a reputable trade finance company who can provide assurances of payment then it can make negotiations much easier.
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Lostock Office Park,
Ping Finance is a trading name of Ping Finance Limited which is registered in England and Wales under Company Number is 10973327, whose registered address is Ground Floor, Unit B Lostock Office Park, Lynstock Way, Lostock, Bolton, England, BL6 4SG. Ping Finance Limited is also registered with the Information Commissioner under Registration Number ZA447449.