Both Invoice Finance and Trade Finance are flexible working capital solutions to help better manage cash flow during trade cycles.
Whilst Trade Finance allows you to pay your overseas suppliers and fund the stock you need before they are shipped, Invoice Finance allows you to access the cash owed to you by customers before the invoices are settled.
ScotPac’s Trade Finance facility is always operated in conjunction with an Invoice Finance facility. The two products are structured to work as one continuous funding line across your trade cycle.
To explore the difference between Trade Finance and Invoice Finance visit our service pages today.
What Is the Difference Between Invoice Finance and Trade Finance?
For Australian businesses involved in trade with overseas or domestic suppliers and customers, there is often a cash flow gap involved in the trade cycle.
For example, you may place a large purchase order with a supplier who demands payment before the goods are sent to you. Sometime later, once the stock has landed and been sold to local customers, your issued invoice isn’t actually due for another 30, 60 or 90 days.
What does this mean?
It means there are two gaps in cash flow at either end of the same trade transaction: You need to pay upfront before receiving goods, stock or material. And you need to be paid before your payment term’s due date to continue funding operation and growth.
These gaps, cash going out early and coming in late, are the exact problems Trade Finance and Invoice Finance are designed to close.
- Trade Finance. This funding facility helps you fund the procurement of materials or stock you need, when you need it.
- Invoice Finance. This working capital solution gives you advance access to the cash tied up in your unpaid invoices.
When do you need Trade Finance?
If your business is struggling to fund orders with overseas suppliers or finding that a lack of working capital is bottlenecking much-needed purchase orders and supplier payments, Trade Finance could be the solution.
This is common for:
- Retail importers needing seasonal stock for peak trading periods
- Manufacturers sourcing raw materials or components
- Exporters needing to fund production before shipment
When do you need Invoice Finance?
If your business is in need for an inflow of cash but capital is tied up in customer invoices, you may need Invoice Finance.
This is common for:
- Wholesale distributors supplying retail chains
- Business-to-business exporters invoicing overseas buyers with extended payment terms
- Growing businesses with sales that are outpacing cash reserves
How Do Import and Export Businesses Use Trade Finance to Pay Overseas Suppliers Before Goods Arrive?
Trade Finance allows importers and exporters to use the funding provided as working capital to pay suppliers, customs duties, and freight costs upfront.
A Trade Finance facility can often use letters of credit or documentary collections as part of its structure.
Why is it so important?
- Suppliers are more frequently requiring payment before shipping
- Shipping lead times can be long and subject to delays
- Currency and customs costs need to be settled before goods even clear port
How Does Invoice Finance Turn Unpaid Customer Invoices Into Working Capital for Wholesalers and Distributors?
Wholesalers and distributors provide goods to customers and then issue invoices with standard payment terms. This gives customers 30, 60, or even 90 days to settle the invoice but your business still needs to fund ongoing operations and expenses.
Invoice Finance allows your business to access up to 85% of the invoice value in advance, rather than waiting for the customer to pay.
Trade Finance vs Invoice Finance: Which Does Your Business Need?
At ScotPac, both facilities can be provided together. The Trade Finance facility is always operated in conjunction with an Invoice Finance facility, never on its own.
Both of these working capital solutions address similar challenges (i.e., cash flow gaps) albeit at different stages of the cash conversion cycle.
That is why ScotPac’s Trade Finance facility is always operated in conjunction with an Invoice Finance facility, so cash flow is covered throughout the entire trade cycle.
For ScotPac clients, this combined working capital solution is the only structure. There is no standalone Trade Finance facility.
Trade Finance funds the purchasing side of the cycle. With the Invoice Finance facility behind it, your business benefits from a single, continuous funding line that ensures access to working capital from the moment you order stock through to customer payment.
How Do Trade and Invoice Finance work together?
- Trade Finance provides the funding needed to pay your supplier and cover freight or customs costs
- You receive the stock, goods or materials and then sell them to your customers on standard or generous trade terms
- Invoice Finance gives you advance access to cash leveraging the customer invoices as security
- Your customers settle their invoices and you receive the balance of funding
This cycle can be repeated and is scalable alongside your business’s growth.
To find out more about how this combined facility can help your business, contact the lending specialists here at ScotPac and ask about our Trade Finance and Invoice Finance offerings.
Explore Trade Finance vs Invoice Finance for your business today
Ready to discover how a combined facility could work for your trade cycle?
Enquire today about Trade Finance and Invoice Finance with ScotPac to get started.
