Trade Finance for Manufacturers: Fund Materials and Keep Production Moving

Trade Finance is an essential working capital solution for Australian manufacturers facing cash flow gaps.

For small and medium sized enterprise (SME) manufacturing materials, inventory or stock for customers, there is often a misalignment in requiring raw materials that need to be paid for long before finished goods are invoiced and incoming cash collected.

That’s why ScotPac’s Trade Finance (combined with Invoice Finance) offers a customisable solution that effectively bridges that gap. It ensures you can fund your ongoing operations so production never stalls whilst waiting for capital.

Explore Trade Finance today.

Why Do Australian Manufacturers Struggle to Fund Raw Materials Before Production Revenue Arrives?

The manufacturing cash flow problem is widespread and persistent for a simple reason: It is a structural problem of the supply chain;

•   You need to pay suppliers, sometimes even overseas suppliers.
• But you have yet to produce the goods for invoicing to customers.
• And your customers have payment terms that delay you receiving payment.

This combination of two delays can stretch your working capital to breaking point. Without revenue, it is difficult to fund raw materials. And without raw materials, it is difficult to ensure production to bring in revenue.

The impact on your business is that growth opportunities often need to be turned down because the cash flow to fund expansion simply isn’t there. Production schedules are shortened significantly in an effort to try and match available working capital, rather than meet customer demand. And, moreover, your supplier relationships are strained by payment delays.

All in all, your business is perpetually reactive in operations rather than strategic and successful.

How Does ScotPac Trade Finance Work for Australian Manufacturers Importing Raw Materials?

ScotPac’s Trade Finance facility is specifically designed to break this cash flow cycle.

How does Trade Finance work for manufacturers?

It basically funds your supplier payments so your own working capital stays in the business and where you need it most. You no longer have to draw on internal cash reserves or engage in expensive overdraft facilities to pay for imported raw materials.

Instead, ScotPac – as your lender – pays your domestic or international supplier directly domestically or internationally. Once your finished goods are produced, invoiced and the money collected, you can repay ScotPac and the begin the cycle anew.

How does Trade Finance and Invoice Finance work together?

Crucially, Trade Finance works with ScotPac’s Invoice Finance to provide a funding solution to both sides of the supply chain. In essence, Invoice Finance works as a paired solution alongside Trade Finance, ensuring you have cash flow coming into your business and funding your purchase of raw material.

Here’s how the two financial facilities work in practice:

Step 1 – Purchase Order 

First, you receive a confirmed order from your customer.

Step 2 – Trade Finance provides payment 

ScotPac will advance the funds to pay your supplier (including offshore exporters in foreign currency where applicable), covering the cost of raw materials, components, or inventory to enable your manufacturing.

Step 3 – Production & delivery 

You, as the manufacturer, provide the goods and deliver them as ordered to your customers.

Step 4 – Invoice raised 

You can now issue an invoice to your customer for the goods provided on standard trade terms, allowing 30, 60 or even 90 days for payment.

Step 5 – Invoice Finance provides payment 

Instead of waiting for your customer to pay, you can access an advance through ScotPac of up to 85% of the value of your invoice immediately.

Step 6 – Receive the balance 

Once your customer does pay, your Trade Finance facility is automatically repaid as well allowing you to grow, scale and take on more customer orders.

This is why the lending specialists here at ScotPac link Trade Finance and Invoice Finance. As a combined facility you can ensure that you can fund the input of raw materials as a manufacturer and accelerate output when collecting payment.

What Is the Difference Between Trade Finance and a Bank Overdraft for Manufacturing Businesses?

Trade Finance is purpose-built working capital solution to fund your supply chain funding. On the other hand, a Bank Overdraft is a general debt facility with no structural link to your trading cycle.

For manufacturers, who have to deal with seasonal spikes in demand, bulk order or early order discounts and the high material costs relative to revenue, Trade Finance is better designed for managing the production-to-payment cycle.

Here are some key differences between the two for manufacturers:

Is ScotPac Trade Finance Suitable for Small and Medium-Sized Australian Manufacturers?

The short answer is yes.

Here at ScotPac, we work primarily with SMEs and are strong advocates for smaller manufacturers.

Our combined Trade Finance and Invoice Finance solution is tailored to support new businesses and SME manufacturers.

We understand that many of Australia’s small and mid-sized manufacturers are unable to access traditional bank Trade Finance due to property security requirements or credit score concerns. That’s why we take a different approach and assess facilities primarily on the quality of your debtors’ reliability to pay and your average monthly revenue.

How do you know if Trade Finance is right for you?

We recommend you speak to a lending specialist at ScotPac today for a custom consultation. However, Trade Finance and Invoice Finance may be the right solution for your manufacturing business if:

• You import raw materials or components from overseas suppliers
• You sell to creditworthy business customers on standard trade terms
• You are growing faster than your cash flow can support
• You have been declined for a Bank Overdraft due to limited property assets
• You need to fund a specific large order or new export contract

Sound like you? Get in touch with ScotPac to explore a Trade Finance solution for your manufacturing business.