Trade Finance That Pays Your Suppliers Up Front

How trade finance works

Trade finance is funding for buying stock and goods. When you place an order, the funder pays your supplier directly, in Australia or overseas, on your behalf. The goods ship, arrive and sell, and you repay the funder after an agreed term, commonly up to around 120 to 180 days for each payment depending on the funder. You pay interest or a fee for the time the money is out.

Most facilities work as a limit. Each supplier payment is drawn against it and repaid on its own date, and as payments are cleared the room becomes available again for the next order. That makes it a close relative of the business line of credit, but tied to purchases and usually paid straight to the supplier rather than into your account.

You will hear a few names for it. Import finance usually means funding overseas purchases. Supplier finance or supply chain finance often means the same thing for local suppliers, or a facility linked with invoice finance to cover the wait for customers to pay. A letter of credit is a bank guarantee to your supplier that they will be paid once agreed shipping documents are presented.

Who it suits

What funders look at

Trading history

Many funders want at least 12 months of trading, with a track record of buying and selling the kind of goods being funded.

Turnover and margins

The funder wants to see the stock sells at a margin that comfortably covers the cost of the money. Larger limits usually need financials.

Your suppliers and the goods

Established suppliers and goods that are easy to sell are simpler to fund. Perishable, specialised or made-to-order goods can be harder.

How quickly stock turns

A clear picture of how long goods take to arrive and sell helps set the term. Stock that sits for a long time is a warning sign.

Security and the directors

Facilities are often secured over the business and its stock, usually with a director's guarantee. Property is often not required.

Typical terms

Common ranges, not promises. Every funder sets its own policy.

• Limit: sized around your buying, from smaller facilities for growing importers to several million dollars for larger traders.
• Funding: many funders pay up to the full supplier invoice. Some pay a set share and ask you to cover the rest.
• Term: each payment usually has its own repayment date, commonly up to around 120 to 180 days depending on the funder.
• Repayments: often one repayment at the end of the term, with the option to clear it earlier and save interest.
• Costs: interest or a fee on the amount outstanding, plus establishment fees and sometimes a fee for each payment. Overseas payments can also carry a currency conversion margin.
• Security: usually a general security over the business and its stock, with a director's guarantee.

An example

Trade finance, invoice finance or line of credit?

What to have ready

• ABN, company details and the directors' details
• Six to twelve months of business bank statements
• Recent BAS, plus financials for larger limits
• A list of your main suppliers, what you buy and their payment terms
• Recent supplier invoices or purchase orders
• A rough idea of how long stock takes to arrive and sell
• Details of any existing finance with security over the business

Trade finance questions

Looking at something else? See invoice and debtor finance for the wait after a sale, the business line of credit for a general cash buffer, business term loans for a one-off amount, or business loans for the full picture.