Import Finance is an important financial solution for businesses engaged in international trade. 

While there are different types of Import Finance, they all work to help businesses bridge the gap in their cash flow–most commonly caused by the time between receiving imported goods and settling payments with exporters. This gap can disrupt access to working capital needed for ongoing operations and growth. 

For example, let’s say that you are looking to sign off on a deal for bulk goods from a new overseas supplier but they require immediate payment upon shipment. Your business has yet to receive the goods and may only receive them in a few weeks. This cash flow squeeze can hinder your ability to cover ongoing costs. Import Finance is an effective strategy for filling in this gap. 

What are the different types of Import Finance and how can they help you and your business? 

The Different Types of Import Finance

Letters of Credit

Letters of Credit are a secure method of building trust with new international trading partners. 

In essence, your financial provider guarantees payment to the exporter once they meet specific conditions outlined in the Letter of Credit. This could include a variety of conditions such as presenting required documentation or proof of shipment. 

The purpose of Letters of credit is to provide security for both parties, facilitate international trade with new partners who don’t have a trusting relationship yet, and streamline transactions to ensure both parties benefit. 

Letters of Credit are ideal for both situations where a business is importing for the first time, importing high-value goods that need further security, or other situations where trading trust needs to be established. 

Invoice Finance to Fund Importing

Invoice Finance actually exists as its own category of financial solution but it can be valuable for importing businesses as well. 

This option allows you to access working capital immediately by ‘selling’ your outstanding invoices from customers and clients. Essentially it’s an avenue to access money owed to you before the accounts are actually settled.  The financial provider advances a percentage of the value of the invoice or invoices and collects the outstanding amount on your behalf. 

Invoice Finance can improve cash flow, shorten payment cycles, and allow better management of working capital. If you are a business dealing with slow-paying international customers or domestic clients, experience seasonal fluctuations in sales that affect your ability to import new goods, or need a cash flow boost, Invoice Finance could be the right choice. 

Asset-Backed Finance to Fund Importing

Asset-backed finance leverages the value of a business’s existing assets, such as inventory or receivables, as collateral for a business loan. The loan amount is based on a few factors, including a percentage of the value of the asset or assets. 

As a business engaged in international trade, asset-backed finance can be instrumental in financing ongoing import purchases. It allows for businesses to access working capital without impacting credit lines, unlocks the capital tied up in existing assets, and offers flexibility in repayment terms. 

If you’re a business with a strong asset base but limited cash flow, asset-backed finance is a flexible option to help you take advantage of growth opportunities in the international market. 

Bonus Types of Import Finance

1. Bank Guarantees

Bank guarantees serve as a financial safety net for import and international trade deals.  

The basic mechanics work like this: The importer’s financial provider or banking institution guarantees the exporter that they will pay a set amount even if the importer fails to meet their obligations, like providing payment for the goods.  

This arrangement protects the exporter financially and allows them to offer better terms to the importer. Both parties win, trust in the international trade partnership can be built and the international trade itself can be facilitated in a smoother way. 

2. Supply Chain Finance 

Supply chain financing provides a unique solution for cash flow challenges in imports. The importer’s bank or a financial provider pays the exporter early (and often at a discount) and the importer repays the third party financial institution later when there is improved cash flow and available working capital. 

Instead of a guarantee, this solution provides more direct and upfront financial involvement to ensure a trusting relationship, efficient cash flow management and reduced risk for both parties. 

Why you should consider Import Finance with ScotPac

A tailored Import Finance solution for your business and your needs offers benefits beyond mere cash flow management–though that is certainly important.

  • It provides a flexible alternative to conventional business loans and overdraft facilities. 
  • There are less stringent eligibility requirements and terms. 
  • It can help you retain access to working capital for further investment growth. 
  • It allows you to negotiate better and more favourable deals in importing. 
  • Your international transactions will be smoother and quicker. 
  • It ensures fast and reliable access to working capital to cover cash flow gaps during macroeconomic shocks, seasonal trends and supply chain disruptions. 

Our lending specialists at ScotPac invest in real relationships with our clients. We are growth enablers and are dedicated to unlocking the potential in your importing business. 

To find out more about how we can help you reach out to the team today and ask about our Import Finance options.