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Finance 101: Trade Finance

Published on 26th April 2017 - Last update on 31st March 2020

There has never been a better time to consider your business’s overseas trade opportunities. With the sheer amount of funding options available, securing a foothold in foreign markets is now easier than ever before.

What is Trade Finance?

Simply put, Trade Finance covers the sort of finance solution that can help your business expand to overseas and establish a successful competitive presence. If you’re seeking to fulfil purchases with overseas clients, or are looking for everything you’ll need for exporting and importing goods and services, Trade Finance is exactly what you need.

How does it work?

Some of the available solutions to your business may include Invoice Finance, Working Capital Finance and Supply Chain Finance:

Invoice Finance

When establishing your presence overseas, you need to move fast. You must ensure that your business is always in the best possible position to take advantage of any and all opportunities. Invoice Finance allows your business to release the funds sealed away in unpaid invoices. Sometimes, when dealing with overseas clients, payments can be held up for any number of reasons. This finance solution allows your business to borrow a sum lump in the region of 90% of the invoice’s value – providing you with an essential safety net. Once your client has completed the final payment for goods and services rendered, or the agreed period has elapsed, you’ll be expected to repay the funds received, plus interest.

Working Capital Finance

Working Capital is the costs your business incurs from running its day-to-day operations and aren’t entirely related to the goods and services you offer. This can include employee wages, human resources and IT systems to name but a few. When trying to establish a presence overseas, managing your working capital costs can prove tricky. To keep this aspect of your business under control, this package can grant you access to a variety of funding solutions including Invoice Finance, Loans and Merchant Cash Advance.  

  • Loans: generally come as either secured or unsecured. Allowing your business to borrow a lump sum in the region of £5,000 to as much as £1,000,000, it can be applied to any aspect of your business – immensely valuable when extending your business overseas.
  • Merchant Cash Advance: A specially tailored finance solution exclusively geared towards businesses supporting digital and card payment technology. This finance solution utilises the potential spending behaviour of your card paying customers. To be eligible, you must present a potential lender your latest sales reports for 2 or more consecutive months. With this finance solution, your business could secure a sum in the region of £5,000 to £100,000. To help your business better cope with the challenges of expanding overseas, two different repayment schemes are available. Whilst Fixed Monthly Repayments requires you to pay a set amount each month, repaying through Percentage Of Your Monthly Sales can offer your business greater flexibility. Should your clients perform fewer card transactions on a particular monthly the amount you’ll need to repay for that month is reduced and vice versa.

Supply Chain Finance

Supply Chain Finance is similar to Invoice Financing but is dependent upon the credit ratings of the other companies linked to the chain. Again, working around invoices, your business can secure up to 90% of each invoice’s total value. Once your business has received full payment from the client, you’ll, in turn, repay the lender.

Why Rangewell?

Our values are simple – we’re on your side. At Rangewell, we support a wide range of SME businesses of every shape and size, for finding every type of finance. Follow us on Twitter and LinkedIn for business tips and tricks, and feel free to call us on 0203 637 2340 if you’d like to chat about what we can do for you.

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David Harrison

David Harrison

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