What is Import Finance?
When we talk about import finance we are referring to financial products that allow companies who bring goods into a country to raise capital. They are necessary thanks to import transactions and regulations that can significantly impact a business’s cash flow and make it difficult to trade. Delays and complications to the importation process also have a bearing on an importer’s ability to operate as money is often paid out long before receiving any goods.
On top of cash-flow issues other complications such as changing freight rates, import tariffs and exchange rates add an element of uncertainty to transactions and impact international trade relationships.
Rises in the amount of international trade have caused the demand for both import and export finance to skyrocket. Despite the obvious benefits businesses enjoy when importing goods (such as lower costs and often higher quality goods) there are many challenges faced. The long payment cycles, having to buy in bulk and overtrading can lead to poor business performance and even insolvency.
Issues Faced When Importing
As outlined, there are many challenges faced when importing goods from overseas. One of the key ones is a lack of trust between parties. Foreign suppliers often demand upfront payment before goods have been manufactured and shipped, putting pressure on cash flow and tying up funds for the duration that an invoice is outstanding.
These periods where funds are tied up leave businesses starved of liquidity that can in turn result in cash flow problems. The purpose of import finance is to ease these issues by ensuring prompt payment for suppliers, increasing the levels of working capital and improving business relationships.
How Does Import Finance Help?
Import finance is a range of financial products tailored specifically to companies that import goods. It sits under the umbrella of trade finance (both import and export) and covers services like:
- Invoice financing & factoring
- Import loans
- Bank guarantees
- Asset-based lending
- Asset finance
- Supply chain financing
Import factoring belongs to the same family of products as factoring and invoice discounting. It helps to create regular, speedy payment cycles that allow companies to utilise the income of future business activities. These products also help foster stronger business relationships between importers and exporters as they mitigate some of the strains often placed on them. This benefits all parties and allows more attractive commercial contract terms to be agreed on.
The practice of import factoring is ideal for well-established import businesses that regularly take large shipments from abroad. The importer must purchase goods that are ‘finished’ or raw materials that come in a ‘sellable’ state, for example, timber. These goods must be purchased in transactions that have a defined gross profit of at least 20%. The finance provider then deals with all of the documentation as part of the agreement, making the process much quicker and more efficient for the importer. Further financial services can be added to the agreement like credit protection to reduce the risk of unrecoverable debt and delivery issues.
This type of finance is designed also to assist professional importers who avoid taking stock risk. This process, also known as “dropshipping” eliminates the risk of being left with products in stock as the importer purchases the goods from a third-party supplier who gets them shipped directly to the customer.
How Does Import Finance Work?
Import finance is possible when you have confirmed orders from reliable customers. Up to 100% of the total order value can be financed, giving businesses the option to raise large sums of money if they have enough in place. This form of working finance capital is designed to assist businesses that regularly import from overseas by providing support to the entire trade cycle. The finance provider essentially works as an intermediary between the manufacturer and the importer, financing and facilitating the transaction.
This system allows the manufacturer to get paid quickly and allows them to continue accepting orders and producing goods. In turn, the importer of said goods is in a strong position to negotiate better trade terms as well as having access to steady cash flow.
How White Oak Can Help With Trade Finance
White Oak has over 25 years of business finance experience. Our range of trade finance packages is well placed to help your business grow and to assist with any cash flow problems you may be experiencing.
You can borrow anywhere between £5 million and £100 million with between 60 and 180 day debtor terms. For more information send an enquiry form to our team of experts today.