Trade finance helps a business grow by giving it the fund it needs to buy goods and stock. Keeping track of cash and working capital is a key part of running a successful business. Trade finance is a tool that can be used to get money out of a company’s existing stock or receivables or to add more finance facilities based on the trade cycles of a company.
By reducing the time between payments in your trade cycle, a trade finance facility may let you offer more competitive terms to both suppliers and customers. It is good for relationships and growth in the supply chain.
It is important to remember that trade finance is not led by the balance sheet of the borrower, but rather by the trade. So, small businesses with weaker balance sheets can use trade finance to trade much larger volumes of goods or services and work with stronger end customers.
Companies can also reduce business risks by using the right structures for trade finance. Late payments from debtors, bad debts, excess stock, and pushy creditors can all affect a business. External financing or revolving credit facilities can help ease this pressure by effectively financing trade flows.