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The term ‘trade finance’ covers a range of financial products and instruments that help importing and exporting businesses to function more effectively. These products include letters of credit, supply chain finance, and forfaiting, and they provide tailored support to cash flow.
Trade finance helps importers and exporters to improve the speed and certainty of financial transactions with their trading partners, and reduces the inherent risks of global trading, such as creditworthiness, currency stability, and non-payment.
A financial ‘third party’ or intermediary, which could be a bank or an alternative finance provider, can smooth international trading transactions by funding the purchase of goods from a supplier on the buying company’s behalf.
When the buyer sells the goods to their customers they repay the intermediary. Trade finance works to improve reliability of payment and delivery between importers and exporters, increasing trust and lowering risk for both parties.
UK Business Finance can provide professional guidance on the best trade finance solution for your business, and ensure that you find the most suitable product.
These are just a few trade finance products that may be available to importers and exporters:
Letter of Credit (LoC)
This is a legally binding letter whereby the importer instructs its bank to pledge to the exporter that it will make payment as soon as the transaction is complete.
A bank can offer a guarantee that provides security for a purchaser if their supplier fails to fulfil its contractual obligations.
This involves the exporter selling their receivables at a discount to a forfaiting company, which then provides immediate payment. This eases cash flow for the exporter, who might otherwise have to wait a considerable time to be paid.
Builds solid relationships between buyers and sellers
The existence of a financial ‘intermediary’ between buyers and sellers promotes trust and good trading relationships that might otherwise be damaged by uncertainty around fulfilment and payment.
Supports business growth
Businesses are more likely to be able to negotiate favourable terms and make larger orders with their suppliers, so promoting the growth of both parties.
With a range of trade finance products available businesses can tailor their funding towards individual needs and benefit from flexible solutions that work specifically for them.
Eases cash flow
The payment gap for suppliers can create uncertainty and jeopardise business stability. Trade finance lowers the risks of trading globally – for example, exchange rate fluctuations and payment delays.
Trade finance can be utilised through a bank or an alternative financier and you will need to compare quotes and deals prior to making an application. Each lender will have their own set of criteria and our expert team will help you find the most suitable trade finance solution.
We are commercial finance brokers and know the criteria of all the lenders in the UK – our no-obligation services are delivered free-of-charge.
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Can I refinance existing business borrowing?
Most companies will have at least some outstanding borrowing, whether that is in the form of business loans, an overdraft, or a type of asset-based lending.
What are my options if my bank has refused my company finance?
When looking for funding to kick start or grow your company, many business owners’ first instinct is to turn to their bank in order to secure this borrowing.
Understanding Revolving Business Credit: Overdrafts and Invoice Finance
Revolving business credit is a flexible line of funding which is available to a company to dip in and out of as and when it is needed.
What is the difference between capital and asset finance?
Capital finance is a broad term which encompasses a number of different commercial funding solutions, including fixed term loans, invoice financing, and overdrafts.