3 tips for small businesses exploring trade finance options

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Trade finance is a great idea for small importing businesses that need help with their cash flow. And it's not just small businesses - latest estimations by the World Trade Organisation indicate that as much as 90 per cent of global trade relies on this form of finance.

When you're exploring trade finance options, it's important to make sure the facility you choose aligns with both your business operations and those of your suppliers.

Not all Trade Finance solutions are created equal so it's important to do some homework. 

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Exploring trade finance options for small businesses

Trade finance allows small importing businesses to grow without the typical cash flow constraints holding them back.  Smaller or growing businesses often have limited or no access to bank loans and other forms of interim financing to cover the cost of goods they purchase.  Without it, this can mean missing out on sufficient cash to bulk buy and negotiate discounts. 

Even with a confirmed order, banks will generally not provide loans to small businesses for these types of transactions without security.  Small growing businesses may not have the security to offer the bank and they do not want to have their own money tied up in shipments of goods that can take weeks or even months to arrive from overseas and many suppliers require payment with order or payment prior to releasing the goods.

1. Ensure you are protected against currency exchange rate fluctuations.

With many businesses using trade finance to support lengthy deals with overseas suppliers, it's important to check the provider you work with supports the currency you're doing business in. In addition suppliers should offer you the right hedging solutions to protect your business against adverse currency exchange rate fluctuations. Without protection your profit is at risk.

2. Consider a combined Trade Finance and Debtor Finance solution 

Trade Finance is even more effective when combined with Debtor Finance. Debtor Finance is a loan facility secured against the eligible invoices you have issued (eligible debtors ledger).  Commonly, businesses have payment terms ranging from 30 to 60 days, which means you are waiting a long time to recoup the money your customers owe you.  By using Debtor Finance you can get access to a percentage of the funds your customers owe you up front when you raise the invoice, instead of waiting for them to pay.  Unlike an overdraft we can provide Debtor Finance without you needing to provide hard security such as property.  We can offer Debtor Finance on a stand-alone basis, or if it is combined with our Trade Finance you get access to additional funding of up to 40% of the value of your eligible debtors ledger!   

3. Check the Trade Finance facility is flexible

When exploring trade finance options to fund payments to suppliers it's important to make sure the facility you choose is flexible and aligns with your actual cash flow cycle.  It pays to check this out before you sign up. When it comes to getting your suppliers paid, ensure your finance provider is happy to work within the payment terms specified, especially if the sellers expect a fast turnaround. For example, don't sign up to a 90-day borrowing period if it actually takes 180 days from when you pay your supplier to when the end product is sold on to your clients.

Working with Classic Funding Group

At Classic Funding Group, we offer a flexible combined Trade Finance and Debtor Finance solution which truly bridges the gap between paying your suppliers and getting paid by your customers.  Our combined solution can give you access to greater funding than Debtor Finance alone and we even pay your suppliers directly (in a wide range of currencies) or work with your current FX provider so you can focus on your business.

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