Quick answer
Trade finance funds the gap between paying an overseas or local supplier and selling the goods. A financier pays the supplier, often when goods ship, and the business repays over a set period, typically a few months, once the stock has been sold. It suits importers, wholesalers and exporters with regular stock cycles. Costs include interest or a margin plus transaction and facility fees.
Key points
- Pays suppliers so you can hold cash until the goods sell.
- Facilities are usually revolving, with each shipment funded for a set period.
- Assessment focuses on your trading history, suppliers and the goods themselves.
- Currency, shipping delays and customs timing all affect the cash cycle.
At a glance
- Typical users
- Importers, wholesalers, distributors and exporters
- Structure
- Revolving facility; each trade funded for an agreed period
- What is funded
- Supplier invoices, deposits, freight and duties
- Security
- Often a general security agreement; sometimes property for larger limits
Our review: trade finance at a glance
What works well
- Lets you buy larger quantities and negotiate better supplier terms
- Preserves cash while goods are in transit
- Revolves with each shipment
- Can strengthen relationships with overseas suppliers
What to watch
- Fees per transaction add up on frequent small orders
- Delays in shipping or sales extend the cost
- Usually needs an established import or export history
- Currency movements can change the true cost of goods
Usually suits
- Businesses importing stock several times a year
- Wholesalers supplying retailers on terms
- Exporters waiting on overseas buyers
Probably look elsewhere if
- Purchases are irregular and small
- Stock turns slowly or is hard to sell
- You are importing for the first time with no track record
Importers live with a long cash cycle. A deposit goes to the supplier when the order is placed, the balance when the goods ship, then there are weeks at sea, customs, freight and duties, and only after that do the goods reach shelves or customers. By the time the cash comes back, months may have passed. Trade finance exists to carry the business through that stretch so stock can be bought in the quantities, and at the prices, that make the business work.
How trade finance works
A trade finance facility is usually a revolving limit dedicated to purchases. When you place an order, the financier pays the supplier, often against shipping documents, and records a separate drawing for that trade. Each drawing has its own term, set to roughly match shipping plus selling time. When the term ends you repay that drawing, ideally from the proceeds of the goods, and the limit becomes available for the next order.
Some facilities can also fund deposits, freight, insurance and duties. Others focus purely on supplier invoices. Some can pay suppliers in their own currency.
What lenders look at
- Your trading history. How long you have imported or exported, volumes and how well stock sells.
- Your suppliers. Established, reliable suppliers lower the risk of goods not arriving as ordered.
- The goods. Fast-moving, saleable stock is easier to fund than specialised or perishable items.
- Your customers and margins. Whether the eventual sale comfortably repays the drawing.
- Security. A general security agreement is common, with property sometimes used for larger limits.
Costs and hidden extras
Trade finance usually combines a margin or interest on each drawing with per-transaction fees, a facility fee and charges for foreign currency payments. On a few large orders a year, the transaction fees are minor. On many small orders, they can become a big part of the cost. Currency is the other hidden variable: if the exchange rate moves against you between ordering and paying, the goods cost more than you budgeted. Ask whether the facility offers ways to fix the exchange rate on a payment.
Trade finance or something else?
| Situation | Option to consider |
|---|---|
| Regular imports with a long cycle | Trade finance |
| Cash tied up in customer invoices after sale | Invoice finance |
| Occasional stock top-ups | Line of credit |
| One-off bulk buy for a season | Short-term loan |
Many wholesalers combine trade finance on the buying side with invoice finance on the selling side, covering the whole cycle. Our wholesale and distribution guide explains how that fits together, and the guide on funding seasonal stock covers the timing questions.
For exporters, the Australian Government’s export credit agency, Export Finance Australia, and Austrade are worth checking for current support and guidance.
An illustrative example
A made-up outdoor furniture importer orders containers from overseas manufacturers twice a year, ahead of spring and summer. Suppliers want payment when goods ship, but retailers pay the importer around 60 days after delivery, which is several months after the supplier was paid.
A trade finance facility pays the suppliers at shipment, with each drawing repaid about four months later. On the selling side, the importer uses invoice finance to draw cash against retailer invoices. Together, the two facilities cover the whole cycle from supplier payment to customer receipt, and the importer can place larger orders that earn better supplier pricing.
The importer reviews the per-transaction fees each season to make sure they remain small relative to the margin on each container.
Exploring trade finance for your business
If supplier payments are tying up cash for months and limiting how much stock you can buy, trade finance or a combination of facilities may help. To explore options, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than many. Tell us how often you order, typical order size and how long goods take to sell. That detail turns a general enquiry into a useful conversation.
Frequently asked questions
What is the difference between trade finance and invoice finance?
Trade finance funds the purchase side, paying suppliers before you sell. Invoice finance funds the sales side, advancing money against invoices you have issued to customers. Some businesses use both to cover the whole cycle.
Can trade finance pay overseas suppliers in foreign currency?
Many facilities can pay suppliers in their currency. Ask how the exchange is handled and whether you can fix the amount in Australian terms, because currency movements change what the goods really cost you.
How long does each trade get funded for?
Usually for a set period agreed per transaction, commonly a few months, roughly covering shipping time plus the time to sell. The facility is then available again for the next order.
Is there government support for exporters?
Export Finance Australia is the Australian Government's export credit agency and can support exporters in some situations. Austrade also provides export guidance. Check their current programs directly.
Sources and further reading
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