Search Results for: ➾ acc6.top Kismia معامله حساب/page/our-solutions/import-finance

How Trade Finance works: A basic guide for import/export businesses

In our interconnected world where instantaneous global communication is taken for granted, it’s easier than ever to do business anywhere in the world.

However, while the opportunities are plentiful, the process of buying and selling internationally is not without its risks and complications. There are many variables at play, with volatile exchange rates, cash flow problems and economic uncertainties all posing their own unique challenges.

An increasingly important mechanism for handling these risks and smoothing the flow of business transactions between nations is a set of financial tools collectively known as trade finance.

The World Trade Organization estimates that up to 90 percent of current global trade relies on some form of trade finance. Yet, in its 2017 International Business Survey, the Australian government’s export credit agency (EFIC) estimates that as little as 35% of Australian internationally active businesses have leveraged these tools.

The reasons Australian small and medium sized enterprises (SMEs) aren’t capitalising on financing opportunities are varied. However, one reason is simply a lack of information on how the process works.

Let’s breakdown the process so being uninformed is no longer a barrier to entry for international trade.

Basic Mechanisms for International Trade

There are a few basic financial mechanisms which form the foundation of international trade transactions. These simple tools have many limitations when used in isolation, but they are vital building blocks for more sophisticated trade finance solutions.

Telegraphic Transfer and Open Accounts

Telegraphic transfer is a simple, fast and straightforward way of moving funds between buyers and sellers. It’s essentially an electronic way of paying cleared funds to a designated bank account.

While it remains one of the most common and practical methods of payment in trade finance transactions, used in isolation it has one significant shortcoming - it imposes significant risk on the buyer.

Without any means of quality assurance or of even obtaining a guarantee of delivery, the buyer is exposed to the possibility of not getting the service or merchandise they paid for. Put simply, a telegraphic transaction pushes all risk onto the buyer.

An alternate mechanism is for the exporter to use an open account. In this arrangement, the exporter extends an open line of credit to international customers, with a request to be paid on delivery.

Obviously, this is a great arrangement for the buyer. The exporter, however, is accepting considerable risk. Not only is the exporter dependent on the good faith of their customer, they’re also vulnerable to unforeseen circumstances in the shipping process, unfavourable exchange rate variation and the list goes on.

Both illustrate an important basic principle for trade finance: the importance of mitigating risk.

Letters of Credit

A letter of credit is a trade financing mechanism designed to allow both buyers and sellers to mitigate some of the inherent risks in international trade, such as non-payment, currency value fluctuation and political or economic instability.

In somewhat simplified terms, here’s how it works.

When a buyer (the importer) wishes to purchase goods from an exporter, they’ll approach their bank with a purchase order. Provided they’re creditworthy, the bank will then issue a letter of credit.

The exporter’s bank will then request the letter of credit from the buyer’s issuing bank. Once the letter is received and its terms verified, the exporter’s bank will clear the exporter to ship the goods.

On receiving the shipping papers, the exporter’s bank will issue payment to the exporter. The shipping papers will then be forwarded to the importer’s bank and payment will be requested from the importer.

By acting as a go-between for the buyer and the seller, a letter of credit greatly reduces both parties’ risk. It’s a critical tool in much of the international trade taking place in the world today.

However, letters of credit only solve part of the problem. They also create their own problems.

While this trade finance instrument reduces risk, it doesn’t eliminate it entirely. Letters of credit are typically filled with complicated and detailed provisions. Any discrepancy or oversight in these terms may nullify one of the party’s payment obligations.

They can also involve slow approval times (months in some instances), which hamstrings importers and exporters alike in responding to market demand.

Perhaps most critically, importers can only use a letter of credit if they’re deemed creditworthy and the line of credit will have a direct impact on the importer’s banking operations.

Enhanced Import and Export Financing Solutions

The letter of credit is a powerful trade finance tool, but on its own it’s insufficient to meet the demands of international business.

More sophisticated and all-encompassing trade finance tools are available. These are designed to allow businesses faster access to finance, greater adaptability to market changes and improved cash flow throughout the entire cycle of order through to shipping and delivery.

Streamlined Credit Arrangements

22% of Australian businesses that do not participate in international trade report that this is due to a lack of certainty on how to begin. Streamlined credit arrangements are designed to provide a simpler and more accessible way for Australian SMEs to do international business.

For example, Scottish Pacific’s Tradeline is designed to offer quick approval times and to be far less restrictive than a standard letter of credit. This product also offers approval times of 5 days and more flexible payment terms than a traditional letter of credit.

Adding to their appeal, these trade finance arrangements typically do not require the buyer to secure credit against existing capital, such as property or cash. This offers a heightened level of financial security and it also means that importers are less constrained by the security they have available.

Import Finance

The goal of import finance is to improve the purchasing power of importers by giving them the option to defer part or all of their purchasing costs until they realise a profit from sales.

Import finance is frequently combined with a letter of credit arrangement to simultaneously offer the importer both greater flexibility and protection against risk factors.

In simple terms, here’s how import finance works.

The buyer will apply for an import finance transaction with a finance institution. Once approved, a letter of credit or telegraphic transfer will be initiated and the seller will produce and ship the ordered goods.

The seller will be paid by the buyer’s bank and an import bill will be created.

Once the goods are cleared and reach the buyer, the import bill will be repaid from debtor finance proceeds. The buyer can then clear the debtor finance on agreed terms.

The benefits here are twofold.

The lengthy period between ordering goods and receiving payment is avoided, assisting both the importer and the exporter in doing business. The buyer will also benefit from quicker growth and stronger sales due to the increased purchasing power import finance can offer.

The cost of this kind of service varies between finance institutions, as do the terms of repayment. As one example, Scottish Pacific’s import finance facility charges interest only when funds are remitted to the exporter and the import finance fee can be adjusted in line with the seller’s unique requirements.

Export Finance

An estimated 93% of internationally active Australian businesses are involved in export.

In scaling up operations for export contracts, Australian SMEs typically experience a sharp increase in manufacturing, capital and shipping expenses, the latter often being considerable given Australia’s relative geographical remoteness from larger international markets.

Long payment terms can further exacerbate their working capital challenges. Delays of up to 180 days for cross-border transactions are commonplace.

Using export finance, sellers can receive funding against invoices raised on overseas customers. There are two major benefits here for the exporter. This removes the barrier of tied-up working capital and alleviates transitional financial pressures.

It also means the exporter can trade on open account terms (usually utilising export credit insurance for added security), thus reducing a critical barrier to international sales.

Export finance is often offered as part of a comprehensive package of services, known as export factoring. With this package of services, rapidly available export finance is provided against invoices. Additionally, collections and international bookkeeping services can be built into an export factoring service, making it an excellent option for SMEs just starting out with exporting.

The Australian Trade and Investment Commission also offers limited Export Market Development Grants (EMDGs) to Australian exporters. The scheme covers part of the expenses incurred on eligible export activities. You can learn more about EMDGs here.

While the world is becoming increasingly interconnected, small and medium sized enterprises in Australia face unique challenges in accessing international markets.

Trade finance is a crucial tool in paving the way for international business. Not only does it open the opportunity for risk mitigation, it offers importers a solution to cash flow challenges and exporters the required capital to fund their expansion.

How to Choose the Right Business Finance Provider for Your Company

Interested in looking at finance options for your company but don’t know where to begin?

Choosing the right business finance provider for your company is not a straightforward process. Different providers offer different kinds of finance, each with their own unique advantages and disadvantages.

But making decisions about what kind of finance your business needs is only the beginning of this research rabbit hole. It’s just as important to ask the right questions about the finance provider itself. In business, ethics and customer service, it only requires a little bit of digging to see that not all finance providers are created equal.

Given the many factors to consider it’s probably not surprising that, despite the obvious advantages of doing so, fewer than 5% of SMEs regularly assess the suitability of credit facilities at their disposal.

In this guide, we’ll give you the basic information you need to choose the right business finance provider for your company. Also, be sure to have a look at the Business Funding Guide, developed in partnership with the Australian Small Business and Family Enterprise Ombudsman (ASBFEO)

Finding a solution tailored to your business

The reason so few businesses regularly reassess their approach to finance boils down to a few overlapping misconceptions.

The first is that terms and conditions will not vary significantly across finance providers. While this may have been the case even a few years ago, increased competition in the finance industry and a growing awareness of the importance of business agility means that a wide variety of new finance solutions are available.

The related misconception is that once you’ve found a good business finance solution, there’s little point revisiting the options available to you.

Now more than ever, different finance packages are specifically tailored to meet different business challenges and it pays to know what is out there. If you’re a startup, you’re going to have different financing needs than if you’re an established company looking to grow your business.

Your company’s financing needs, its risks and its opportunities are all going to factor into which finance facility is best for you.

Finally, there’s a common impression that once your business has committed to a channel of finance, that it is “locked in.” This isn’t the case at all. It’s entirely possible to change how you manage your business finance.

The first step to finding a finance solution is to reassess your situation, gain clarity on what challenges your business is facing and take a fresh look at the full range of available financing options.

To illustrate the variables, here are a few commonly faced financing scenarios.

Rapid sales growth

One common finance pain point a new business often faces is in handling rapid sales growth. When a sudden increase in demand for a product or service occurs, it can be a struggle for a business to expand its capacity to fulfil that demand.

Shifting to a tailored facility such as invoice finance offers a few unique advantages over conventional finance facilities.

This strategy allows the business to improve its cash flow position by allowing it to draw money against sales invoices. The funding available through invoice financing increases in line with business revenues, eliminating the requirement for continual re-negotiation during a period of expansion.

These facilities also offer the advantage of being fast and accessible. Once set up, Scottish Pacific’s invoice financing solution has a 24 hour approval turnaround and has no requirement for real estate security. Adding to its versatility, it can be combined with a collections service, freeing business owners of the impositions of chasing up customers for payment.

Entering the international market

An estimated 93% of internationally active Australian businesses are involved in export. Expanding operations into overseas markets is driving demand for new working capital solutions.

When expanding to accept export contracts, Australian SMEs incur a sharp increase in capital and shipping expenses. Long payment terms of up to 180 days add to the working capital challenges and also often impact on domestic operations.

While a traditional loan can help with this transition, export finance is a tailored solution which can offer crucial added advantages.

Using export finance, sellers can receive finance against invoices raised on overseas customers. This frees up working capital.

Export finance also offers the security an international business needs to trade on open account terms (often using export credit insurance as added security), thus removing trust as a barrier to international sales.

Gaining a rapid competitive advantage

Australian SMEs seeking to rapidly expand (for example in the case of a buyout, merger or acquisition) are increasingly looking to asset finance as an adaptable and efficient finance facility. $34.7 billion was leveraged using asset finance in Australia in 2017, representing a 3.5% increase over 2016.

Asset finance allows businesses to rapidly access additional funding against existing infrastructure, equipment or property.

Adding to its usefulness for quick growth, asset finance frequently builds in flexible options for repayment, including interest-only periods.

A major first step in finding the right finance provider for your company is to get really specific about your unique business challenges. While added working capital will extend any businesses’ reach, finding the right finance facility will better position your business to squeeze every possible advantage from that capital.

Asking finance providers the right questions

Once you’ve taken stock of your businesses’ unique finance needs, the next step is to take a closer look at how prospective finance providers operate. There are three basic questions you should ask about any finance provider.

How strong is the collective expertise of their people?

A product is only as good as the people behind it. It’s therefore a good idea to drill into a finance provider’s website for information about the people you’ll be working with.

One useful people-focused metric to investigate is the experience of the finance provider’s executive team. Finding this information is typically as simple as searching their website. An “Our People” page or an annual report will typically give you a clear picture of the skills and experience which drive the finance provider’s vision and business practices.

Take Scottish Pacific as an example. This company’s mission and vision is clearly informed by an executive team with strong experience in financing SMEs and international business. The company’s blog features regular analysis and commentary from its executive team—another indicator of active and engaged leadership.

You’ll also benefit from looking for evidence of appropriate specialist expertise.

Let’s say your business is looking for finance to assist with import or export. The best finance provider for you will likely be one which incorporates a dedicated team of trade experts—people who can work with you to make sure your business is well-positioned to manage the added risk of international transactions.

Does the business finance provider have a solid reputation?

The finance industry is both highly competitive and heavily scrutinised.

This is great news for businesses in the market for a finance solution. With just a little research you can uncover a lot of information on the performance and reputation of bank and non-bank finance providers. This information is a great measure not only of ethics and business practice but also of a provider’s capacity to offer innovative and highly competitive products.

Trade Finance Global, an international body specialising in alternative finance and complex funding types, is a great place to start. Their yearly International Trade Awards recognise innovation and excellence in business finance solutions.

How will your data be handled?

These days it’s crucial to seek assurance of both customer confidentiality and efficiency in handling your data. The finance institution you’re working with should have clear and mature strategies for how it handles your data.

For example, if your goal is to secure extra working capital, can a prospective finance provider assure you of the privacy of your financial arrangements when dealing on your behalf with clients? Scottish Pacific’s invoice discounting solution, for example, explicitly guarantees a confidential line of credit when handling client’s invoices.

Then there’s the issue of whether the finance provider has a demonstrated commitment to helping you access your own information in useful ways. An easy way to establish this is to pick up the phone and ask a prospective finance provider representative what will be required from you in order to access up-to-date information on your account.

How long will you typically need to wait to speak with someone? Will you have access to a dedicated financial expert who knows your account and understands your business?

A useful follow-up question is to request information on their Account Manager to client ratio. It goes without saying that the fewer clients your Account Manager is handling, the better the service you’re likely to receive.

Finally, check that you can access your live data online. Non-bank finance providers are leading the way in providing comprehensive and mature client portals in which all your finance data is available in real-time.

Scottish Pacific’s online finance portal is one of the most mature products available, allowing customers not only to pull high-level reports on their finance facility but also to drill down into current availability, incoming payments and cash flow.

Choosing the right business finance provider isn’t a simple process. However, if you start with taking a fresh look at your businesses’ unique financing requirements and build on this to ask providers some basic questions about their expertise, reputation and accessibility, the chances are you’ll be pretty close to finding the best provider for your business.

For more assistance, download our Business Funding Guide today. Or get in touch with us here on 1300 505 883 to discuss how we can help.

What Type of Debtor Finance is Right for My Business?

Debtor finance is no longer seen by businesses merely as a simple stopgap measure for quickly getting on top of unplanned cash flow demands.

Increasingly, it’s being acknowledged as an effective means to sustainably foster business growth while minimising the effects of market volatility.

It’s also being embraced as a more flexible option than conventional bank loans and overdrafts — one which doesn’t require real estate as security and which imposes far fewer constraints in the form of loan conditions and covenants.

However, despite this growing trend toward debtor finance over traditional loans, there’s still a limited awareness of the various kinds of debtor finance that are out there. In a recent survey it was found that fewer than 5% of SMEs actively assess the suitability of tailored credit facilities.

As a result, while businesses may be benefiting from improved lines of credit, they may be missing out on tailored solutions.

In this guide, we’ll look at the advantages and disadvantages of debtor finance in its various forms. We’ll also explore the kinds of businesses to which each line of finance is best suited.

Debtor Finance

Debtor finance is a catch-all term for a kind of finance in which a line of credit is secured by accounts receivable. Essentially, it’s a means by which a business can borrow money against what they’re owed from their customers.

An Adaptable Solution That Can Be Used in Conjunction With Traditional Loans

The big benefit of debtor finance is that, unlike conventional loan arrangements, it has no requirement for real estate or facilitieIn addition to offering risk management advantages, debtor finance is a highly adaptable tool which can be used alongside conventional business borrowings without affecting their terms.

In addition to offering risk management advantages, debtor finance is a highly adaptable tool which can be used alongside conventional business borrowings without affecting their terms.

While typical debtor finance offers many advantages over conventional banking financing solutions, there may be more tailored options which fit the needs of specific businesses. 

Ideal Solution for Larger Businesses

Typically, debtor finance is best suited to medium to large businesses, with a turnover greater than $200,000.

For such companies equipped with their own accounts receivable department, debtor finance can be completely confidential, allowing the business to manage their own accounts receivable directly.

The following variations on debtor financing are similar to standard debtor financing in terms of their flexibility and the absence of a real estate securities requirement. However, they have unique additional features, making them a better choice for businesses facing specific growth and cashflow challenges.

Invoice Discounting

Invoice discounting is a form of short-term borrowing which is designed to improve a businesses’ cash flow position.

This is achieved by allowing a business to draw money against outstanding accounts receivable. It allows businesses to grow consistently, unhampered by a need to constantly wait for customer payments before further investing in expansion.

Flexible Line of Credit Which Grows With Your Company Sales Growth

One obvious and immediate benefit of invoice discounting is that credit limits are not fixed. Limits grow in line with business revenue, freeing a business up from the onerous requirement of ongoing loan re-negotiation.

If a sudden sales opportunity arises, an invoice discounting facility can cater for the increased cash flow needs, whereas a conventional loan would require re-negotiating its terms and conditions.

Factoring

Factoring refers to a service whereby a financial institution takes over the role of collections and chasing up on payments. The great benefit here for smaller business is that it frees them up to focus on growth rather than invoice management.

There are also potential downsides of this form of finance. Generally the amount you can access is capped at around 60% of revenue, although this can vary by institution. Scottish Pacific will pay up to 80% on approved invoices.

Furthermore, while factoring greatly increases a small businesses’ reach, it does generally mean the financial institution’s involvement is divulged to the customer. This may not be ideal in all circumstances.

An Ideal Finance Facility for Businesses Facing Rapid Sales Growth and Those Dealing With International Customers

Invoice discounting with Export factoring is ideal for businesses experiencing growth potential that is outstripping their growth capacity.

A business experiencing rapid sales growth is under pressure to rapidly capitalise on opportunities as they present themselves, and invoice financing affords that agility.

It’s also a great solution for businesses that are supplying goods or services on standard trade credit terms.
While trade credit terms are attractive for customers, without a suitable finance facility, there can be growth-hampering delays between issuing an invoice and receiving payment. Securing credit against pending invoices avoids that growth constraint.

Some non-bank finance providers offer export finance, which is the same package but geared toward international markets.

For example, Scottish Pacific’s export finance facility affords Australian businesses the flexibility to raise invoices to customers in over 20 approved countries.

Another advantage of this trade-friendly form of finance is that it can come with access to a specialist trade finance team, which permits SMEs to better traverse some of the risks inherent to international trade.

Selective Invoice Finance

Selective invoice finance is similar to invoice discounting. However, a key difference is that it is designed to be an on-demand service, used selectively and only when required.

Credit can be secured for relatively small invoice amounts, and can be secured against only one sales invoice, making it a great option for small businesses.

Once approved, this kind of finance is designed to permit rapid processing-times.

Scottish Pacific’s selective invoice facility typically has a processing time of less than 24 hours, with 80% of the value of the invoice then paid to the business and the remaining 20% released when the invoice is paid.

This facility works well when there’s a high exposure to a major debtor. There are no concentration restrictions with selective invoice finance. Scottish Pacific, for example, will approve 100% for a single debtor or major debtor balance.

Rapid, Flexible Credit on an Invoice by Invoice Basis

The overriding benefit here is in the flexibility that selective invoice finance affords. It allows a business rapid access to cash flow on an invoice by invoice basis.

It also limits unnecessary exposure to debt. SMEs are only paying for the finance they need and they are able to avoid the waste of paying non-usage fees and interest on unused borrowed funds.

A Solution Tailor-Made for Seasonal Businesses And Startups

Selective invoice finance is great for seasonal businesses.

Businesses with cash flow that fluctuates according to the time of year are unlikely to require a standing line of credit. In fact, for much of the year, such an arrangement would be an inefficient use of resources.

By accessing selective invoice finance, seasonal businesses are able to absorb sudden bursts in demand for additional working capital, without overextending. They’re effectively able to increase or decrease their cash flow on a sale by sale basis.

It’s also an ideal option for startup or exploratory businesses with at least 6 months trading history but who are unsure of the extent of the market they’re dealing with.

These kinds of businesses may be daunted at the prospect of committing to a long-term finance facility but a rapid, small-scale solution may afford the same advantages with less upfront financial commitment.

What Debtor Finance Works Best for You?

Debtor finance was once seen as a stopgap measure for handling unexpected cash flow challenges.

More SMEs are now embracing debtor finance as a tool which offers greater strategic growth potential than conventional loans.

Businesses with larger turnover are looking to debtor finance as a means of gaining cashflow without having to use real estate or facilities as security. They’re also using it to do business more favourably on trade credit terms.

Smaller businesses experiencing rapid growth are taking advantage of invoice discounting with factoring to hand over the role of collections and invoice management to a financial institution, greatly increasing their capacity to focus on their core businesses.

Seasonal and startup business enterprises stand to benefit greatly from the flexibility afforded by selective invoicing, with its quick processing times and low invoice amount requirements.

Whatever unique challenges your business is facing, it’s well-worth looking closely at the various forms of debtor finance that are available and choose the facility which works best for you.

What cash flow challenges is your business facing? If you’d like advice on the best debtor finance facility for your needs, you can contact a Scottish Pacific financial adviser here.

What is Business Finance?

Whether you need a large lump sum to fund your expansion plans or regular access to credit to help you manage cash flow, being able to raise capital is key to business growth. If you don’t have the resources to self-fund your business plans, you’ll need to look at third-party funding sources. That’s where business […]

Importing from China to Australia: Customs, Costs and Regulations Explained

Updated on 16th September 2024 Disclaimer: This article is for general information purposes only and is not intended to serve as professional advice. The data and information provided are accurate at the time of writing, but we recommend verifying details and consulting with relevant professionals before making any decisions. For businesses looking for an excellent […]

Growth Finance: What Are Your Options?

A growing business is cash hungry. One of the biggest challenges business owners face is that cash flow doesn’t always keep up with growth. The more sales you make, the more capital you need. Growing businesses need capital to expand and survive. Larger businesses are generally more successful for longer. A company with 1-4 employees […]

Types of Business Finance

Article updated 30/10/2024 Business cash flow and profit are not the same. Many successful companies and small business owners need funding to support working capital and fuel growth plans. 56% of businesses across the US, Canada, the UK, Australia and New Zealand experience cash-flow related pressure. That’s why maintaining sufficient cash flow and access to […]