Quick answer: On a first import, your supplier usually wants paying when the goods ship, and you won’t see your customers’ money for weeks or months after that. Trade Finance can pay the supplier for you. It can fund up to 100% of the cost of goods for up to 150 days, subject to approval and facility terms.

Trade Finance typically works alongside an Invoice Finance facility, though there may be other ways to structure it. Your first overseas purchase is assessed on the business, the proposed transaction, your suppliers and your business customers. Being new to importing isn’t the same as being new to business. Trading history requirements depend on how the facility is structured, so a lending specialist can tell you what applies to you.

What this looks like in practice

A homewares business had sold locally made stock to retailers for 6 years before deciding to import its own range for the first time. The new supplier, in China, wanted paying in full when the goods shipped.

The business had a solid record with its local suppliers, but none with this one, and its retailer customers still expected to pay on their usual terms after delivery.

That meant paying for the whole order long before any money came back. Trade Finance paid the supplier directly, with repayment set around the business’s buying cycle.

What is the process of a first import?

A first import generally runs in the following order:

  • You get a quote and agree the order with your supplier.
  • Because you have no history together, your supplier is likely to want paying upfront, often when the goods ship.
  • The goods are produced and shipped, with transit taking several weeks at least.
  • The goods arrive and you deliver them to your customers.
  • Your customers pay on their usual terms, often 30 to 60 days after delivery.

Until then, your business carries the full cost of the order.

How is the cash flow gap of a first import covered?

On a first import you haven’t yet seen how long production, transit and customer payment really take, so the size of the gap is an estimate. And as orders get bigger, the gap tends to grow with them.

With no import record to go on, a lender looks at other things:

  • What is being ordered, from which supplier and for what purpose
  • What is the track record of the supplier
  • Who is buying the ordered goods from you and what are their trade terms

Our lending specialists assess your business and proposed order before deciding whether funding is suitable.

How does Trade Finance funding work?

Once your order is approved, we pay your supplier directly under the agreed arrangement, generally once the goods have shipped. You don’t draw on your own working capital before the goods arrive, and repayment is set around your buying cycle.

If it’s your first time dealing with an overseas supplier, our trade specialists in Australia, New Zealand and China can help you negotiate the terms.

How does Invoice Finance work alongside Trade Finance?

They cover 2 different parts of the same cycle.

Trade Finance 

Trade Finance covers the stage before your goods arrive by paying your supplier.

Invoice Finance 

Invoice Finance covers the stage after you have received and sold the goods and issued eligible invoices to your business customers. It can provide up to 85% of eligible invoice value before your customer pays, subject to approval and facility terms. The balance is released after payment, less applicable fees.

What does Trade Finance not do?

A few limits worth knowing:

  • It generally funds the approved order, not freight, duties or clearance costs.
  • Trade Finance does not extend beyond 150 days. If the time from shipment to your customer paying is longer, that needs to be worked through before the first order.
  • It does not guarantee your customer will pay you on time. Plan for that.
  • It does not replace checking your supplier, and making sure quality, specification and delivery dates are right.
  • It usually runs alongside Invoice Finance, which needs invoices to business customers. If you sell only to consumers, there may be other ways to structure funding. Ask a lending specialist which options fit your trading model.

Questions to put to a provider before you sign

  • Which parts of my first order can be funded?
  • What do you need from me, my supplier and my customers?
  • Do I need Invoice Finance alongside Trade Finance, or are there other ways to structure it?
  • Does the repayment window cover transit and my customers’ payment terms?
  • What security, fees and repayment obligations apply?

Get in touch with a lending specialist to talk through your first order, your supplier and your customers.

Frequently Asked Questions

Can Trade Finance fund domestic trade?

Yes. It can pay local suppliers as well as overseas ones.

Does Trade Finance provide funding in only Australian dollars?

No. Your supplier can be paid in AUD, USD or almost any other currency.

How do you know if Trade Finance fits your first order?

Start with the proposed funding and repayment dates. Allow for transit, any time holding stock, delivery, invoicing and your customer payment terms. Fitting inside 150 days on paper doesn’t mean the funding window covers your order, so check the actual dates with a lending specialist.

Is Trade Finance used for spending other than importing finished goods?

Often, yes. Trade Finance can fund stock and finished goods, and depending on how the facility is structured, raw materials and imported equipment or machinery too. It isn’t general working capital for everyday business costs.

https://www.scotpac.com.au/our-solutions/trade-finance/apply-now/ScotPac provides business finance to businesses. These facilities are not consumer credit products.

Related Post