Trade Finance

A form of pre-invoice finance, Trade Finance enables a business to order goods for onward sale (normally by way of Letter of Credit provided by the Trade Finance company) on the strength of confirmed orders from reputable clients for completed goods.

If your business does not have the financial track record to obtain credit from suppliers or the history to secure overdraft facilities, Trade Finance could be the answer.

This type of facility is often linked to a factoring facility and works as follows:-

• You receive an order from your customer
• You source the goods from your supplier and they invoice you
• The funder verifies the order with your customer and arranges payment to your supplier.
• Your supplier ships the goods to you
• You supply the goods to your customer, raise an invoice and copy it to the funder
• The funder retains the equivalent value of the payment already made to the supplier and the remainder is sent to you
• Once the customer pays, the funder then pays the balance to you.

Expect to pay between 2% and 4% of the supplier payment (plus any associated costs / import duty) for this type of facility. It is therefore usually only a viable option for transactions with a gross profit margin of 20% and more.

As this type of facility is considered to involve a higher risk to funnders than a traditional factoring faciliiy, most funders would place more emphasis on business owners when undertaking their due diligence. In most cases funders will only commit if director/shareholders are houseowners.