Could a trade financing arrangement benefit your business’ supply chain?
If your business imports products from overseas or purchases products within Australia, you’ll already know that supply chain management (SCM) is not always a simple process.
You need to juggle paying your suppliers without spending too much of your working capital with effectively balancing the needs of your customers - all while meeting your deadlines. And thanks to the impacts of COVID-19 on global imports and exports, the need for better supply chain management is growing.
In the past, business owners struggling to pay suppliers may have turned to traditional banks for financial assistance, but this is made more difficult when banks have to mitigate their own risk in the current COVID-19 economic environment.
This is where a trade finance company, such as Earlypay, may come in handy. If your business has been struggling with limited working capital, which is in turn impacting your supply chain management, you may want to consider trade finance.
What is trade finance?
Trade Finance is a form of business finance that can fund your supplier invoices on domestic and international trade orders. It gives businesses big and small the ability to pay suppliers upfront for imported products, without dipping into their working capital. This helps businesses keep their supply chains flowing, and prevents them from decreasing their cash flow.
Trade finance is beneficial for businesses as it offers them the choice to spread the cost of their orders over a longer term. It also greatly reduces risk that may affect the flow of goods or payment.
What trade finance means for your supply chain management
1. It mitigate risks
2020 highlighted how at any moment unique risks, such as a global pandemic, could slow down global trade on a massive scale.
While the coronavirus pandemic was somewhat of a fluke spanner in the works for global supply chains, there are more common risks associated with trade transactions that trade finance can protect you from, such as the creditworthiness of either party, insolvency on either side, currency fluctuations, political instability, and issues of non-payment.
Through the assuredness that your business will be able to pay for the importing of products, because you have secured financing ahead of time, you’re able to ensure that the movement and storage of materials flows smoothly, and end-to-end order fulfilment is achieved in a timely manner.
2. It protects your working capital
Importing products, such as raw materials and finished goods domestically or internationally is not cheap. And as mentioned above, there are a range of risks associated with this process, and delays can occur. And when this happens, cash flow issues can follow.
If your business is using most of its working capital to fund the importing of goods, you may find that you no longer have enough cash flow to fund other areas of your business, such as purchasing new equipment, hiring more staff or even paying for ongoing expenses.
Trade finance can assist a business in anticipating the cost of import delays and other risks, without fear of hurting its cash flow. And when working capital is no longer an issue, a business can better plan and manage its resources to meet customer demands for its products or services.
3. It may help increase your revenue
A business may feel it needs to say no to bigger projects due to the perceived cost of importing materials and products needed for said project. If a business is using trade finance, it is able to say yes to this type of job, maintain a healthy level of cash flow and ensure its overall profits aren’t adversely impacted.
By being able to say yes to big projects and delivering on orders, trade finance may help you improve your overall supply chain management. In turn, this can allow businesses to say yes to more projects. And not being hindered by the cost of importing products for your business operations means your business revenue and earnings may grow exponentially.
4. It helps to maintain client relationships
If your business found itself with cash flow stagnation for whatever reason, you may be unable to pay your suppliers for your raw materials and goods. Not only is this an unwelcome outcome (for the reasons listed above), but it will potentially damage your relationship with the supplier in question.
Losing supplier relationships is detrimental to your supply chain management, due to the time and effort involved in replacing them. Trade finance may be able to mitigate this risk by ensuring the supplier is paid in an orderly fashion, keeping the relationship positive.
5. It could help you to secure more favourable pricing
Protecting the relationships you have with your suppliers may also help you to secure a lower price for imports, as many suppliers may offer discounts for upfront payments. And even if your suppliers do not offer discounts on paper, opting for a trade financing solution gives you a greater level of negotiating power.
If last year was a difficult one for your business in terms of import costs, 2021 may be the year you consider trade finance solutions. Earlypay Trade provides comprehensive trade finance services, which work alongside our invoice financing services. In fact, Earlypay can offer expert solutions for your trade, logistics, freight and currency requirements as part of its customer service.
Get in touch with our trade finance experts today please visit us at earlypay.com.au or contact your broker or BDM to learn more.