As companies continue to acquire foreign suppliers and open new markets for their products, the impact on cash flow cannot be underestimated. Companies are now looking beyond traditional bank financing, such as an overdraft, to more creative methods that allow financing to be provided from existing business cycles. Businesses can free up capital that can be used to offer discounts to customers or extend credit terms, resulting in a competitive advantage for your business.
Tracey Davenport, director of relations with a leading European commercial bank, comes across this regularly. “Companies realize that they cannot support their suppliers and expect payments from customers around the world while dealing with day-to-day operations, all from their overdraft. With companies that enter into import and export agreements in countries like China or India need a way to manage these relationships without putting pressure on their operating cash. The challenge is educating companies that there is a better way to finance trade than through a limited and potentially expensive overdraft facility. ” .
Companies continue to outsource their supplier relationships in traditional areas such as the Far East, but new markets such as Poland, Turkey and Eastern Europe offer a lower-cost base alternative and faster access to finished products. The problem many businesses encounter is having the support of their local bank to provide financing against bills of exchange, letters of credit, and business documentation.
Mr. Davenport commented: “Companies expanding into new countries, whether through supplier or customer relationships, need to make sure that the bank in that respective country is financially sound. The problem many banks have is that their Corresponding banking network can be very limited, which has a negative impact. Businesses looking to close their financing gap through trade finance have to review the partner banks that their suppliers and clients use and then find the right bank to work in. your country of origin “.
Trade finance services can be tailored to individual business requirements, resulting in improved financial management and improved cash flow. For example, by raising funds against documentary credits, companies can benefit from immediate release of funds. With import letter of credit advances, you can negotiate vendor discounts that can help improve your company’s gross margin. For an established import / export business, a trade finance solution could provide a low cost form of non-recourse fixed rate financing along with better sales opportunities.
If your business is considering a new business partner or a new export country, trade financing is one way to reduce your risk and help improve your profits in the future.
