The best business advice, opinion, news and expertise in Greater Manchester and further afield.

Thursday, 31 March 2016

Member Blog: What is trade finance and how can it help your business?

By Vince Tovey - Davenham Trade Finance 

In simple terms, trade finance can benefit any business sourcing goods from overseas, and let’s face it, there is no getting away from the fact that we are a nation of importers and are likely to remain so for some time. Right now it is a cost effective time to be dealing with certain parts of the world, as the cost of freight and the appetite of some overseas manufacturers to work with the UK at very competitive prices has not been this positive for quite some time – especially in the Far East.

Closer to home, there continue to be opportunities with our European neighbours, where the majority of goods imported into the UK originate from, with the added benefit that goods can arrive into the UK within a matter of days (rather than weeks when dealing with farther flung shores). This allows deals to turn quickly and a trade finance facility to be particularly cost effective.

At Davenham Trade Finance, we look to assist such businesses dealing in finished goods with good margins that are required to fulfil a forward order book or are regular lines sold to regular customers. With the increasing difficulty in SMEs obtaining the more traditional types of funding they have previously been able to access, alternative sources of funding, particularly trade finance, have become essential. This is even more prevalent in the much smaller SMEs – from a new start-up to a £2m turnover business – and these are the businesses that we are particularly focused on helping.

So, what are the key triggers that would suggest a trade finance facility might help your business?

A rapidly growing order book requiring an increase in supplier purchases.
Seasonality within a business that causes spikes in the cash flow at certain times of the year or the trading cycle.
Short term cash flow “holes” created by the pressure to make supplier payments.
Winning a one-off deal that is larger than the traditional orders the business writes or bringing on board a significant new customer.

We know that SMEs put a lot of work into winning orders and into attracting new customers, so it is essential that this hard work does not go to waste through an inability to then fulfil these orders, and a trade finance facility can ensure that this is avoided and that orders can be successfully fulfilled. If a business feels it is restricted by the lack of available cash flow or working capital then it is possible a small trade finance facility may provide a solution that will allow the cash flow to become more liquid, helping the business to take on additional orders and therefore eventually increase both its turnover and profits – which is what everybody wants, isn’t it?

After reading this, we hope you have gained a more in-depth understanding of what trade finance is and how it works, and if you believe your business could benefit from a trade finance facility, please get in touch for an initial discussion and to explore whether this may be of benefit to your business.

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