Imagine paying domestic or overseas suppliers COD (cash on delivery with no credit terms) and then not having to pay for a further 150 days*.
Trade/Import Finance is a facility that provides businesses with the capital to do just that.
How the finance facility works:
Put simply, an intermediary firm provides this facility by making payment to the business’s domestic or overseas suppliers. The business then has 150 days to reimburse the intermediary.
Trade/Import Finance can be used for:
- Equipment imports or deposit payments – without a letter of credit;
- Pay before goods are shipped, or COD; and
- Can be backed onto an Invoice Finance facility to facilitate settlement.
To get a better understanding we have put together some example scenarios:
- XYZ Transport is looking to import a piece of equipment, however payment is required to be made to the overseas supplier before release
- A major bank’s pre-approved equipment finance line can only be activated once the equipment is sighted in Australia
- Therefore, Trade Finance/Import Finance provides payment in full to the overseas supplier – without the need for letters of credit
- Then once the goods arrive, the equipment finance is activated to facilitate settlement of the Trade Finance
- XYZ Transport has been awarded a large purchase order from their customer for the supply of goods
- Goods are urgently required to be purchased from a supplier, however the supplier has imposed a credit limit or, at worst, COD terms
- XYZ Transport’s overdraft facility was fully utilised
- An intermediary provided Trade Finance approval and made payment directly to the supplier within 48 hours of receiving the enquiry from XYZ Transport
- Once the goods were delivered to XYZ Transport’s end-customer, an Invoice Finance facility was then backed-on to pay-out the Trade Finance, and then the end-customer made payment directly to the intermediary to settle the overall transaction
These are just two examples of how Trade/Import Finance can assist businesses and ensure they maintain a positive cash flow.
If this article had sparked any questions and you would like to know more, please contact your Finance Executive directly or contact us here.
*150 days for approved applicant
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