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Within The UK or Internationally, You Can Finance Your Trade From Cradle To Grave

Trade within the UK and Internationally.

Let’s lose the common misconception first – Trade Finance can be for stock, materials or goods sourced within the UK, as much as it can be used internationally. 

If you have a Supply Chain then please talk to us about suitable funding for it.

Trading with suppliers or manufacturers can begin with either an order from a client that you have to fulfil, or having to ‘stock up’ on the goods that you sell because your customers will expect a quick delivery after they make a purchase.

Depending on the nature of their business, companies either buy raw materials that they manufacture or assemble to create finished and saleable goods, or they will purchase ‘finished goods’ from a manufacturer or supplier – packaged and ready for delivery to their customers.

At this initial stage of their process how you fund the purchase of goods or materials has to be thought through, in combination with how you will get paid when you sell to customers; therein lies the analogy of ‘cradle to grave’ in terms of your business’s trading process.

Trade Finance can be used to fit a wide range of business types:

  • Purchase raw materials or finished goods
  • Trade can be with UK based companies as well as overseas
  • Commonly Trade Finance lenders are also experts in FX
  • Goods can be pre-sold, or to provide a stock for sale

Your business can improve prices and terms from having the backing of a trade facility and being able to pay earlier; Trade Finance facilities can be flexible to accommodate deposits if required on order, and other costs including import VAT and freight if these are applicable to you.

In the current environment companies need to conserve cash within the business as working capital can become strained without much notice. Funding the purchase of goods or materials that are either pre-sold or to provide you with stock leaves crucial cash in the business to cover overheads and unexpected cash calls on the company.

The following are just general illustrations of how Trade Finance can work for a business – and also how you could be covered from ‘cradle to grave’ with Invoice Finance after you have received your goods:

Example 1 – Trade Finance only
Day 1
Receive customer Purchase Order or have a requirement for stock – Place order with manufacturer, and Trade Finance provide the required 10% deposit (example)
Day 45
Post-manufacture the goods are shipped to you, and the balance of the manufacturer’s invoice is settled for you by Trade Finance
Day 59
Goods arrive in the UK – Trade Finance can settle freight and import VAT costs if applicable / necessary
Day 90 (Example facility limit)
You repay the total due on the Trade Finance facility.
Example 2 – Trade Finance + Invoice Finance
Day 1
Receive customer Purchase Order or have a requirement for stock – Place order with manufacturer, and Trade Finance provide the required 10% deposit (example)
Day 45
Post-manufacture the goods are shipped to you, and the balance of the manufacturer’s invoice is settled for you by Trade Finance
Day 59
Goods arrive in the UK – Trade Finance can settle freight and import VAT costs if applicable / necessary
Day 60 (Example for trade on ‘finished goods’)
You raise an invoice for the sale amount to your customer in your Invoice Finance facility – this drawdown repays your Trade Finance facility in full, with the balance paid to you
Day 105 (Example 45-day terms to your customer)
Your customer settles the invoice through your Invoice Finance facility – clearing funds owed by you and the balance is again paid out to you

Trade Finance lenders additionally offer Invoice Finance facilities to their clients for good reason – because they can then offer your business a seamless process without causing a large cash call on the company at any stage of your trading lifecycle.

It of course depends on the nature of your business whether Invoice Finance is suitable for how you deal with your customers – but if it is suitable then Example 2 demonstrated that you could complete the entire transaction without any significant draw on your cash flow.

A common objection to both types of finance is the cost of the facility and funding these transactions; beyond the fact that lenders that we work with offer extremely competitive rates on their facilities, I would suggest that these are a great example of the ends justifying the costs of the means.

The cost of funding will slightly reduce your margin on the transaction – but with very little effect on working capital, and consequently you are still able to meet other demands that you face – as well as to fulfil any opportunities that are presented to you.

A final point to add is that until 31st March, for eligible Covid affected companies, we have access to Trade Finance facilities that under CBILS are service charge and interest charge free for 12 months. This isn’t to be ignored if you are eligible; it could literally save you thousands of pounds in the next year and make all the difference to you as you trade back from Covid.

We understand that every step of ’getting stock’ to ‘getting paid for stock’ can be a draw on your cash flow that you possibly can’t currently afford or runs the risk of your working capital running very low – we have multiple lenders that offer Trade Finance facilities, and further complimentary facilities if required such as FX and Invoice Finance.

If you buy materials or goods in the UK or from overseas, don’t let that be the reason you cannot accept new business or orders, or take up any new opportunities. Why not get in touch and discuss how we can support you with suitable Trade Finance options?

How do you want to get funded?

Mark.

mark@essexcommercialfinance.co.uk / 07726 195 106

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Essex Commercial Finance Limited  is a company registered in England and Wales with Company number 12610135
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