Trade finance, so the deal does not stall on the money

What is trade finance and how does it work?

Trade finance is the group of products that keep goods moving while money catches up. In a typical trade cycle, you pay a supplier, take delivery, sell to a customer and then wait for payment. Each of those steps takes days or weeks. Trade finance puts funding into the cycle at the point where cash is most stretched, so you can accept bigger orders, buy better and keep your supplier relationships healthy.

The term covers a wide range. Some products fund the purchase of goods. Others guarantee a payment to a supplier. Others release cash against orders or invoices once the goods are on their way or delivered. Which one fits depends on what you trade, who you trade with and where in the chain the squeeze is.

Who is trade finance for?

• Importers who pay overseas suppliers well before goods can be sold
• Exporters who ship first and are paid on later terms
• Wholesalers and distributors buying in volume
• Manufacturers who buy raw materials and wait for finished goods to sell
• Fast-growing businesses whose order book is bigger than their bank balance
• Businesses taking on a large new customer with long payment terms

If you sit in the middle of a supply chain, you may be squeezed from both ends: suppliers want fast payment and customers pay slowly. That is where trade-style funding tends to earn its place.

What are the main types of trade finance?

Type	What it does	Where to read more
Import funding	Pays overseas or local suppliers so goods can be shipped and cleared	Import finance
Export funding	Supports production and shipment before an overseas buyer pays	Export finance
Purchase order funding	Advances money against a confirmed customer order	Purchase order finance
Receivables funding	Releases cash against issued invoices	Debtor finance
Payment guarantees	Gives a supplier comfort that they will be paid	Letters of credit and bank guarantees
Stock funding	Pays for inventory held for resale	Stock and inventory finance

Many businesses use more than one. An importer might fund the purchase with one product and release cash on the resulting invoices with another.

What do lenders look at in a trade finance application?

Trade lenders tend to look at the deal as well as the business. Common points include:

• The goods. What are they, how easily can they be sold, and are they standard or specialised?
• The counterparties. Who is the supplier and who is the buyer? Reliable, established customers usually strengthen a file.
• The trade cycle. How long between paying and being paid, and how consistent is that pattern?
• Your track record. Bank statements, BAS, financial statements and past trading performance. Our guide on what documents you need is a handy checklist.
• Security. The goods, the receivables, other business assets, or property.
• Margins. Enough profit in each transaction to absorb costs and surprises.

For cross-border trade, lenders also think about currency movements, shipping risk and the legal environment of the other country. Official bodies such as Austrade and Export Finance Australia publish plain-English material on those subjects.

How does Ownright help with trade finance?

Ownright Custom Finance is a broker built around solutions. Trevor Scott has spent more than 40 years in finance, and the team works across business, asset, commercial and private lending. That breadth matters here, because trade funding often needs a blend: perhaps a facility against the goods, with extra security from property to make the numbers work.

Where a bank has said no, we look at other lenders who weigh trade deals differently. Where timing is tight, we say so early and plan the shortest path, without promising speeds that depend on the lender, the security and how quickly your documents arrive. We arrange finance Australia-wide, so it does not matter whether your warehouse is in Port Melbourne, Fremantle or regional Queensland.

An illustration

Illustrative scenario only. A family-owned distribution business lands a contract with a national retailer. The orders are large and the retailer pays on long terms. The business must buy product from its suppliers well before the first payment arrives. The bank is unwilling to extend the existing overdraft quickly enough. We look at the order, the retailer’s payment pattern, the stock and the business’s other assets, and consider a mix of purchase order funding, then invoice funding once goods are delivered. The structure follows the deal rather than forcing the deal to fit a single product.

Common mistakes with trade finance

• Funding a deal with thin margins. If the profit does not cover the cost of funding plus surprises, growth can hurt.
• Ignoring foreign exchange. For overseas trade, movements in exchange rates can change your costs between order and payment.
• Not reading the facility terms. Understand what is secured, what triggers repayment and how disputes with customers are handled.
• Overlapping security. Check what other lenders already hold before agreeing new terms. The Personal Property Securities Register is the public record.
• Leaving it too late. Applying after a supplier has already demanded payment narrows your options. Getting loan ready early helps.

What other options sit near trade finance?

If your main pain is general cash flow, look at cash flow loans or a business line of credit. If supplier payments are the issue, supplier payment finance and supply chain finance are worth a read. Businesses with property equity can also explore a secured business loan.

How do I know if trade finance is the right fit?

Start with a simple test: draw your trade cycle on one line, from the day you pay a supplier to the day a customer pays you. Mark each delay. If the longest gap is between buying and selling, stock or import-style funding tends to fit. If it sits between invoicing and payment, receivables funding is usually closer. If both are long, you probably need a layered approach.

Next, ask what happens if the gap grows. A single late shipment or one slow-paying customer can double the time your money is out. Good funding leaves some headroom for that, rather than being sized to the best case.

Finally, consider cost against benefit. Funding costs money, so the extra sales, better supplier pricing or avoided penalties it enables should comfortably outweigh it. Where they do, trade finance is working as intended. Where margins are thin, it is worth pausing to look at the pricing of your own sales before borrowing. We are happy to talk through that honestly, even if the answer is that a smaller facility will do.

Looking for trade finance that fits your deal?

Sounds like you’re looking for trade finance. We’re the lending experts in making trade deals work when the standard routes fall short, so click the button and see if you qualify. Prefer to talk it through? Ring the team on 03 7043 7233.