Setting up a Trade Finance facility is usually the more straightforward part. What tends to take longer is checking the details behind your order, such as confirming the purchase order and verifying your supplier. So the more complete those details are when you apply, the faster it moves.
Once your facility is in place, supplier payments can be funded in as little as 24 hours from settlement. Here’s what the process involves, and where a little preparation can save you time.
How does the Trade Finance approval process work?
An application usually goes through 5 stages, from your first conversation to your supplier being paid.
Enquiry
It starts with a conversation with a ScotPac lending specialist about what you’re buying, who from, on what terms, and how the transaction is best structured.
Application
Next, you send through your business documents, the purchase order and the terms agreed with your supplier. The more of this you have ready, the faster the rest goes.
Verification
ScotPac checks the transaction, your supplier and your eligibility. How you pay the supplier matters here: a telegraphic transfer, a Letter of Credit or Documents Against Payment each come with different checks, which can change how long this stage takes.
Agreement
If the application is approved, ScotPac and your business agree the facility terms and funding conditions. Funding can cover up to 100% of the cost of goods for up to 150 days, subject to approval and facility terms. Repayment follows the agreed terms.
Funding
Once the facility is approved and the transaction’s funding conditions are met, ScotPac pays the supplier under the agreed arrangement.
What does your business need to provide?
The single biggest thing you can do to speed things up is to have your paperwork ready before you apply.
If you’re not sure whether something applies to you, ask your lending specialist.
- Purchase order or supply agreement details, including quantities, pricing and delivery terms
- Supplier information, including where they’re based and their payment terms
- Details of the goods or services being financed, and how they fit into your trading cycle
- Your own business details, trading history, and when you need the supplier paid
- How you or your supplier want the payment made, such as a telegraphic transfer, Letter of Credit or Documents Against Payment
Having this information organised can reduce follow-up requests, although it does not guarantee a particular approval time.
What affects Trade Finance approval time?
Some of it is in your hands:
- Purchase order details should be clear and complete.
- Supplier information needs to be accurate and current.
- Answering follow-up questions quickly can significantly reduce the turnaround time on verification.
Some of it isn’t:
- How long it takes to verify a new supplier
- Agreeing the conditions of a Letter of Credit, such as shipping milestones or delivery confirmation
- Currency, country and payment-method requirements
A new supplier or transaction may require additional checks compared with a repeat order, so a first order with a new supplier usually takes longer than a repeat one.
If your application stalls, ask your specialist what’s still outstanding. It may be a missing document, or it may be a question about the transaction itself, and it helps to know which.
What this looks like in practice
A kitchenware distributor lands its biggest order yet: a $220,000 Christmas range for a national homewares chain. It has sourced the range from a manufacturer in China it has never bought from, and because the relationship is new, the manufacturer wants a Letter of Credit rather than a straight transfer.
The distributor sets up Invoice Finance and Trade Finance together. The Invoice Finance side means the retailer’s invoices can be funded once the stock is delivered, and the Trade Finance side pays the manufacturer.
The first order takes a little longer while the new supplier is checked and the Letter of Credit documents are finalised. The second order in February moves much faster. The supplier is already approved and happy to be paid by transfer once the goods ship, so payment can go through in as little as a day.
What do you need to check with your Trade Finance provider?
Back-and-forth with your lender can also add time, so it helps to settle a few questions early:
- Which currencies the facility can be structured in, and whether that changes how the transaction is verified
- How much of the cost of goods will be funded for your order
- Exactly which documents you need at each stage
- Whether your Trade Finance solution will use a Letter of Credit, Documents Against Payment, or another arrangement
- Whether an Invoice Finance facility is required or suitable alongside Trade Finance
- Who to contact if there’s a delay or a problem with the supplier
Got a supplier payment deadline coming up? Get in touch with a lending specialist.
