Trade finance is a form of funding aimed at assisting any companies that are involved in international trade. Whether you’re a small business hoping to import from an overseas vendor for the first time or even an established corporation exporting larger amounts of products around the world every year, trade financing can make the export and import transactions simpler, safer, and more secure. As trade finance solutions work by funding your suppliers in order to ensure the shipment of goods or financing your business in advance for any international purchases, it can have a number of benefits for companies of all sizes, and here are just some of the most important ones you need to know:
Various products and services
If your goal is to boost your future finances now, banks and other trade financiers can offer a number of different solutions to fit the specific needs of various businesses. The two most common products are bank guarantees, where banks aim to pay beneficiaries if exporters or importers fail to meet their contractual obligations, as well as letters of credit, promising that the financier will immediately make the necessary payments as long as all the shipping documents are presented according to the agreement. These two services aren’t necessarily fixed, but can have many variations to serve different types of businesses, circumstances, and transactions.
Managing your cash flow
Even if they don’t necessarily require monetary assistance at the moment, many experienced companies that frequently export and import will establish certain trade financing agreements, as they’re considered to be a great way of managing cash flow. Trade finance will give you the opportunity to control your money more easily and avoid any unpleasantries, by ensuring all purchases are paid for in advance, and all vendors are compensated equally when you need them. As cash flow problems have a tendency to suddenly arise or worsen, every business should aim to maintain a steady working capital status, and trade finance solutions can help greatly in this area as well.
Ensuring necessary deals
In case you don’t have any or sufficient funds in your account, trade finance solutions will still allow you to set things in motion, assuming you are making personal purchases for the items you truly require, or you already have a genuine purchase agreement. Unlike many others, this financing option doesn’t depend on your credit record, meaning you won’t need a particularly good credit score or a favorable track record in order to be approved. Instead, trade financing solutions are focused on your future transactions, assuring you will be able to pay for them in case you have an established business.
Offering greater flexibility
Opting for the best, most reliable trade finance solutions will also provide you with greater flexibility you might not be able to enjoy otherwise. For instance, a great Trade finance facility will allow you to set your own trading terms based on your specific business needs, thus empowering you to close your working capital gap. Similarly, a suitable solution might also give you the opportunity to diversify your funding options, strengthen your relationship with international and local suppliers, and partner only with the best providers for your company. In turn, this will help you grow and expand your business more quickly, without the obstacle of common cash flow challenges.
No required assets as security
Just like good credit records aren’t necessary, trade finance solutions won’t require any assets as security either, which might be why so many finance managers recommend this option for companies, particularly smaller businesses. As long as you have viable purchase orders or are buying supplies your business needs to operate, you will be able to fund it with trade financing. That is another benefit of being focused solely on future business deals, as most financiers are willing to provide the necessary funding, considering the fact that guaranteed upcoming transactions are already able to cover your financing needs.
Paying for what you need
With trade financing, each transaction only covers a specific import or export order. As trade finance options are only used when you already have certain orders to fund, you will never have to pay for any additional funds you don’t necessarily require. The coverage is only available for the predetermined amount, down to the last cent. Therefore, trade finance solutions can be utilized whenever you need them, without being tied to any long-term contracts and deals. It’s a simple and flexible solution you could always use when you need further funds for future transactions.
Providing guaranteed security
If you want to give your suppliers and vendors more courage and confidence in the transactions you make with them, trade financing solutions are the safest option. This option will allow you to give your sellers assurance of payment directly from the bank or other financial provider. Consequently, your business partners can feel more confident knowing maximum security is guaranteed, and you might also be able to improve and strengthen your most important business relationships.
Evidently, trade finance allows businesses to fund their purchases in safer, more flexible, and more convenient ways. By making the processes of exporting and importing significantly more secure and straightforward, trade finance solutions are truly crucial for any company striving for international success.
