Trade Finance Australia: Expert Guide & Options
If you trade internationally, or buy and sell domestically in large volumes, trade finance offers access to ongoing working capital to fund your trading activity.
Why use trade finance?
Why exporters use it
• Reliable cashflow
When trading overseas you may have substantial up-front costs and lengthy delays before you receive payment. In the meantime, there are other fixed costs to cover. Trade finance means you can bridge the gap between incurring the cost of the trade and receiving payment.
• Offer better terms to customers
Having access to working capital in the form of trade finance means you can offer competitive credit terms to your customers, without it impacting your operational capacity.
• Gives you scope to grow
Trade finance means you won’t need to turn down orders due to cashflow constraints. You can accept orders in the knowledge that you have a credit line to tap into for materials, staff, production costs and transport.
Why importers use it
• Working capital
Trade finance means you can place orders when it suits your business, not just when you have funds on hand to pay. A trade credit facility smooths over cashflow shortfalls so you can continue to operate seamlessly.
• Secure better terms
Having access to credit means you can take advantage of any discounts offered by vendors for ordering in bulk or offering fast payment for the goods supplied. This can be particularly valuable for businesses with narrow profit margins.
• Reassure vendors
With the backing of a lender, you can enter contracts with suppliers who otherwise might not be willing to accept the risk involved in a trade, or who might charge a risk premium for dealing with a new partner.
How trade finance works
Place or accept an order
A buyer places an order with a supplier, or a business accepts an order from a customer. This step establishes the basis for the trade transaction and sets out the terms for delivery and payment.
Receive or issue an invoice
An invoice is issued by the supplier (or received by the buyer), outlining the goods or services provided and the amount payable. This invoice becomes a key document for initiating the trade finance process.
Apply for trade finance
The business applies for trade finance from a lender to cover the upfront costs of purchasing or producing the goods. This helps bridge the cash flow gap between order fulfilment and payment collection.
Receive funds from the lender
Once approved, the lender provides funds to cover the purchase, production, or shipping costs. The funds may go directly to the supplier or be paid to the business, depending on the finance structure.
Complete the transaction
The goods are delivered to the buyer, or the business receives them for onward sale. Invoices are settled by the end customer, generating the revenue used to repay the finance.
Repay the trade finance
The business repays the lender the financed amount, along with any fees and interest. Ideally, repayment aligns with incoming customer payments to maintain healthy cash flow.
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