Quick answer: Import Finance is the group of funding options that let an importing business pay an overseas supplier before its own customers have paid it. At ScotPac, the core of it is Trade Finance, which pays your supplier, typically working alongside Invoice Finance, which releases cash once you’ve sold the goods and invoiced your customers. Larger businesses may also look at Asset Based Finance. Which one fits depends on where the gap sits in your buying cycle: placing the order, paying the supplier, holding the stock, or waiting on your customers to pay.
If you import stock into Australia, you already know the problem. Your supplier wants paying on shipment. Your goods are weeks away. Your customers are weeks further still.
So this guide follows your buying cycle, from placing the order to getting paid, and shows which type of Import Finance helps at each stage.
Why does importing create a cash flow gap in the first place?
The gap is not a sign that something has gone wrong in your business. It is built into the way importing works.
You pay your supplier, in full or in part, before your goods are even made. Then they ship. Then they clear customs. Then they sit in your warehouse until they sell. Then your customers take 30, 60 or 90 days to pay. Money leaves at the start of that chain and comes back at the very end of it, and the distance between the two is your buying cycle. For an importer it can run for months. Every dollar sitting inside it is a dollar you cannot put towards your next order, your wages or your rent.
What usually triggers the search for Import Finance?
It’s usually something specific that sends importers looking:
- A new overseas supplier wants payment upfront, or a sizeable deposit, before you’ve built any history with them.
- Your orders have grown faster than your cash reserves, so you have the demand but not the cash to buy the stock.
- You could get a better price or better terms by paying sooner, but paying sooner is exactly what you can’t do right now.
The real cost is rarely a missed payment. It’s the order you turn down because you can’t fund the stock, and that cost doesn’t shows up in your accounts.
What is Import Finance and how does it work for Australian importers?
Import Finance is a set of funding arrangements for businesses buying goods from overseas suppliers. Its job is simple: bridge the period between paying your supplier and being paid by your own customers. Import Finance gives importers access to working capital through Trade Finance facilities that help manage the financial side of international transactions.
The category is broad, but every instrument in it does one of 3 things.
- It guarantees a payment to your supplier.
- It lends against an order you have placed.
- It lends against what that order becomes: stock on your shelf, then an invoice on your customer.
Where does the cash flow gap actually sit in your buying cycle?
One shipment can put pressure on your cash at 4 different points, and a facility that helps at one may not help at the next. If the real squeeze is waiting on customers to pay, funding your supplier payments only solves half the problem. So it’s worth working out where the gap sits before you choose how to fund it.
| Stage | What is happening | Why it’s a problem | What can help |
|---|---|---|---|
| 1. Placing the order | You agree a purchase, often with a supplier you haven’t bought from before. | The supplier wants to know it’ll be paid, and you want to know the goods will ship. | A Letter of Credit or Documents Against Payment, arranged through Trade Finance. |
| 2. Paying the supplier | Payment is due before or when the goods ship, weeks before they arrive. | Cash goes out before you have any stock to sell. | Trade Finance |
| 3. Stock landed, not yet sold | The goods are in your warehouse, waiting to sell. | Your cash is tied up in stock you can’t use yet. | Trade Finance, if it paid the supplier, because repayment can be timed for after the goods sell. A Line of Credit if you paid from your own cash and need working capital while the stock sells. For larger businesses, Asset Based Finance. |
| 4. Sold, waiting to be paid | You’ve invoiced your customers and they’re on 30, 60 or 90-day terms. | You’ve paid for the goods but won’t see the money for weeks. | Invoice Finance |
What this looks like in practice
An outdoor and camping goods importer in Melbourne lands a $280,000 order from a national retailer for next season’s catalogue. The tents and sleeping bags come from a manufacturer in China. The retailer pays 60 days after delivery. Add 5 or 6 weeks at sea and in port, and the importer would be close to 4 months out of pocket on a single order.
Trade Finance pays the manufacturer when the container ships. Because the range is already sold, the stock barely sits in the warehouse before it goes out to the retailer’s stores. Once the retailer is invoiced, Invoice Finance brings forward most of that invoice, and that is what repays the Trade Finance. The importer takes the full order without tying up its own cash for 4 months.
Which Import Finance options does ScotPac offer?
Each one answers a different stage of the cycle above. Some are facilities in their own right. Others, such as a Letter of Credit, are ways of paying your supplier within a facility.
Trade Finance: how do you pay a supplier before the stock has sold?
Trade Finance funds the purchase of stock, inventory and raw materials from overseas and domestic suppliers. It closes the cash flow gap between sales and the procurement of the materials or stock you need. Funding is available in almost any currency, and our specialists work with you to negotiate better terms with your supplier. 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, which repays it once the goods are sold and invoiced. If Invoice Finance isn’t the right fit for your business, there may be other options available, and a lending specialist can talk them through.
Letters of Credit: how do you trade with a supplier who doesn’t know you?
A Letter of Credit is one way your supplier can be paid within a Trade Finance arrangement. It guarantees payment once the conditions written into it are met, usually the presentation of shipping documents.
What it really buys you is trust. It lets you place an order with a supplier who has no history with you, because that supplier is relying on a lender’s undertaking rather than on your word. For a first order with a new overseas manufacturer, that is often the thing standing between you and the deal.
ScotPac raises Letters of Credit as part of its Import Finance process. The published sequence runs like this: you place the order and submit an application, a Letter of Credit is raised, your goods are produced and shipped, ScotPac pays the exporter and an Import Bill is created, your goods are delivered, and the Import Bill is settled through your Invoice Finance facility.
Supply Chain Finance: how do you cover both ends of the cycle?
Supply Chain Finance combines Trade Finance and Invoice Finance across the same cycle. Trade Finance pays your supplier, and Invoice Finance releases cash from your customer invoices once the goods are sold.
It suits importers who feel the pressure at both ends: paying suppliers before the goods arrive, then waiting on customers after they’ve sold.
Line of Credit: how do you keep cash moving while stock sells?
Not every importer funds the supplier payment through a facility. If you’ve paid for a shipment from your own cash, the pressure shows up later, while the stock waits to sell and wages, rent and freight still need paying.
A Line of Credit gives you an approved limit, from $50,000 to $500,000, that you can draw on when you need it and repay as sales come in. You pay interest only on what you use, and you can draw again once you’ve repaid. It isn’t built specifically for importing, but it can cover the gap while landed stock sells.
Asset Based Finance: when does a broader facility make sense?
Asset Based Finance can give larger, established businesses one facility secured across a blend of eligible debtors, inventory, property, and plant and equipment, with facilities of up to $50 million.
It isn’t the automatic answer for stock sitting in a warehouse. It suits businesses with the scale and asset mix to support a facility of that size, and a lending specialist can tell you early whether yours does.
Invoice Finance: how do you stop customer payment terms dictating your next order?
Invoice Finance funds the last stage. It releases the cash tied up in invoices you have already issued, so the wait for your customer to pay stops deciding when you can place your next order. ScotPac may advance up to 85% of eligible invoice value, with the facility structured around your receivables.
What if you know these products by a different name?
Import Finance vocabulary is not standardised, and you may have arrived here with a word that does not appear above. The common ones map like this.
| What you searched for | What you want it to do | The ScotPac equivalent |
|---|---|---|
| Purchase order finance | Fund a confirmed order when you cannot yet pay the supplier | Trade Finance |
| Stock finance, inventory finance | Free up cash tied into goods you have already bought | Trade Finance |
| Invoice factoring, debtor finance | Get paid on invoices you have issued without waiting out the terms | Invoice Finance |
| Import loan, trade loan | A short term advance to pay an overseas supplier | Trade Finance |
Same problems, different labels. If a provider uses a word you do not recognise, ask them which stage of your cycle it funds. You will know straight away whether it is the thing you came for.
What other Import Finance instruments will you see in the market?
Search for types of Import Finance and you will get a longer list than the options above. The instruments below are widely used, and you will see them named as types of Import Finance. They sit outside the facilities in this article, because they are arranged through a bank, an insurer or your supplier rather than through a working capital lender. It is worth knowing which is which before you go asking for one
| Instrument | What it is | Usually arranged through |
|---|---|---|
| Bank Guarantees | An undertaking to pay your supplier if you do not meet your obligations. | A bank |
| Documentary Collections | An intermediary handles the exchange of trade documents against payment. | A bank |
| Import Trade Insurance | Cover against the risks attached to an international transaction. | An insurer or broker |
| Supplier’s Credit | Payment terms extended to you by your supplier directly, with no financier involved. | Your supplier |
One thing worth separating out. If you are importing plant, machinery or equipment for your own use rather than goods for resale, that can be funded through Asset Finance, which is a different product to everything in this article.
What doesn’t Import Finance do?
Worth being clear on the limits before you walk into a conversation with a lender.
- It does not make a slow customer pay faster. It changes when you get the money, not when they pay.
- It does not remove currency risk on its own. Paying in your supplier’s currency and fixing the rate are separate decisions from funding the purchase.
How do you choose between the types of Import Finance?
Start with the point where your cash is tightest:
- If it’s paying a new supplier, look at Trade Finance.
- If it’s stock that has landed but not sold, the supplier has already been paid, so a Line of Credit may help while the stock sells. Larger businesses can also look at Asset Based Finance.
- If it’s waiting on customers to pay, look at Invoice Finance.
What should you ask a provider before you sign?
- Which stage of my buying cycle does this facility fund, and which stages does it leave open?
- Does this facility have to be operated alongside another one, and what does the pair cost rather than the headline product?
- Is it limited to finished goods, or will it cover raw materials and components?
- Which currencies can you pay my supplier in, and can the rate be fixed when I place the order rather than when you pay?
- What happens to the facility if a shipment is delayed, or a customer pays late?
- How is my limit reviewed as my order volumes change, and what triggers a reassessment?
Not sure which stage of your cycle is hurting most? Get in touch with a lending specialist.
Why choose ScotPac for Import Finance?
ScotPac is Australia’s largest specialist provider of working capital solutions. We also have a local office in Guangzhou, China and our specialists assist clients in negotiating better terms, conditions and arrangements with manufacturers in China and beyond, which offers a great advantage when you are trying to agree terms across a time zone and a language.
