What is trade finance and how does it work?
Trade finance, also known as purchase order finance provides funding for companies to pay suppliers for the purchase of finished goods, normally against firm customer order or where there is a proven demand for the product.
Trade finance, also known as purchase order finance is a wide ranging term covering a variety of business finance products all of which are designed to facilitate trade and to provide funding for companies to pay suppliers for the purchase of finished goods, normally against firm customer order or where there is a proven demand for the product.
Trade finance usually co-exists alongside more traditional forms of funding like bank overdrafts, invoice discounting and factoring and we specialise in arranging purchase order finance and import finance to allow a company to purchase finished goods where they hold a firm order for their resale from one of their own customers.
Many companies have found their growth stifled by insufficient working capital and whilst liquidity can be increased substantially by means of factoring or invoice discounting these facilities are only available once the goods have been sold and delivered but often the problem is an inability to fund the purchase of the goods for resale in the first place which is where trade or purchase order finance comes into it’s own.
Whilst trade finance has traditionally been used for the import of finished goods there is no reason why the same facilities cannot be applied to products purchased from within the United Kingdom although it should be stressed that there needs to be a firm purchase order in place from a customer as this method of funding can rarely be used for stock finance.
for the import of finished goods
to fund the purchase of finished goods against firm customer orders
to fund the purchase of raw materials to use in the manufacturing process
Export vat finance
to fund the recoverable Vat element of export sales.
Stock finance facilities of varying types exist to enable companies to buy stocks of finished goods or in some cases, raw materials.
Typically the finance company or bank will agree a limit for stock finance and repayment is often by accepted Bill of Exchange which is presented on due date.
This method of finance tends to be available mainly to companies that are profitable with a healthy Balance Sheet although consideration may also be given to companies that don’t quite fit the criteria.
Factoring Solutions UK Ltd has a good relationship with these niche trade finance players, and we know who can offer what type of funding to whom. Even more importantly our broking service can put you in touch with UK trade finance companies who are innovative enough to devise new ways to help where possible.
As a broker our services are completely free of charge so please contact us without obligation on 01827 707680 to see if we can help.