Trade Finance provides a variety of benefits to a range of beneficiaries, from corporates to small and medium-sized enterprises (SMEs), as well as to countries and governments.
Companies use Trade Finance to increase the volumes of goods and services which they trade, fulfil large contracts, and scale operations internationally. Governments also assist with guaranteeing trade finance, as they aim to increase the trade of goods and services.
What Are the Main Benefits of Trade Finance?
- Having access to Trade finance helps facilitate the growth of a business.
- Managing cash and working capital are critical to the success of any business. Trade finance is a tool which is used to unlock capital from a company’s existing stock or receivables.
- Why does this help? This may allow you to offer more competitive terms to both suppliers and customers, by reducing payment gaps in your trade cycle. It is beneficial for supply chain relationships and growth.
Trade finance facilitates the growth of a business."
- Trade finance is a solution for short to medium-term working capital, and uses the underlying products or services being imported/ exported as security/ collateral. It increases the revenue potential of a company, and earlier payments may allow for higher margins.
- Trade finance allows companies to request higher volumes of stock or place larger orders with suppliers, leading to economies of scale and bulk discounts.
- Trade finance can also help strengthen the relationship between buyers and sellers, increasing profit margins. It allows a company to be more competitive.
- Managing the supply chain is critical for any business. Trade and supply chain finance helps ease out cash constraints or liquidity gaps - for suppliers, customers, third parties, employees or providers. Earlier payments also mitigates risk for suppliers.
- It is important to note trade finance focuses more on the trade than the underlying borrower, i.e. it is not balance sheet led. Therefore, small businesses with weaker balance sheets can use trade finance to trade significantly larger volumes of goods or services and work with stronger end customers.
- Trade finance lending instruments have embedded risk mitigants which may allow a trading company to access a more diverse supplier base. A more diverse supplier network increases competition and efficiency in markets and supply chains.
- Companies can also mitigate business risks by using appropriate trade finance structures. Late payments from debtors, bad debts, excess stock and demanding creditors can have detrimental effects on a business. External financing or revolving credit facilities can ease this pressure by effectively financing trade flows.
Trade financing gives your business the breathing room it needs to grow when the opportunity presents itself."