In some ways Trade Finance could have been put in with Invoice Finance as, usually, the trade financier is repaid from an end sale to a trade customer.
Trade Finance covers both domestic and international transactions and involves the trade financier facilitating the purchase of goods, being repaid by final sale.
By way of an example a recent transaction involved a UK business seeking help facilitating a sale of a product, sourced in the Far East, being sold here in the UK to a supermarket chain.
The Far Eastern supplier would not offer any credit terms; the trade financier implemented a facility where they purchased the goods ‘up front’, allowing the Far Eastern supplier to release the goods. Upon arrival in the UK, goods were despatched to the Supermarket chain, invoiced on 60 Day Terms.
From the date the payment was made to the supplier, to the date the supermarket paid a total of 141 days elapsed. The trade financier covers this, for their fee, enabling the transaction to take place.
There are specialist trade finance houses here in the UK and most have individuals behind them with international trade experience. High margins on product are needed and there are restrictions on the type of transaction a financier will consider.
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