Trade finance

The problem trade finance solves

Picture the stock cycle of a typical distributor. You order goods and the supplier wants paying on order or on dispatch. The goods take weeks to arrive. They sit in your warehouse for another few weeks. Then you sell them, often on 30-day terms, and finally get paid. From the moment you pay the supplier to the moment your customer pays you, your cash is tied up.

Trade finance shortens that wait. The funder pays the supplier for you, and you repay at the end of an agreed term, by which point the goods should have sold.

How a trade finance transaction works

1. You agree a purchase with your supplier.
2. You submit the supplier’s invoice to the trade funder.
3. The funder pays the supplier directly.
4. Goods ship, arrive and are sold.
5. You repay the funder within the agreed term.

With a revolving facility, steps 2 to 5 repeat for each new purchase, within your approved limit.

Who uses trade finance?

Business	Typical use
Wholesalers and distributors	Bulk stock purchases
Retailers	Seasonal ranges and peak stock
Manufacturers	Raw materials and components
E-commerce sellers	Inventory from overseas factories
Food and beverage	Ingredients and packaging

What do trade funders look at?

• How long you’ve been trading and your turnover.
• Your history with the supplier and the goods.
• Your margins and how quickly stock sells.
• Your customers and how reliably they pay.
• Your existing debts and credit history.

Because the facility is tied to real transactions, funders care about the quality of those transactions: who the supplier is, what the goods are and how quickly they turn into cash.

Trade finance and its neighbours

Trade finance overlaps with several other entries on this shelf:

• Import finance is trade finance for overseas suppliers, often including freight and duty.
• Purchase order finance funds a supplier to fulfil a confirmed customer order.
• Inventory finance is secured by stock you already hold.
• Supply chain finance is usually set up by large buyers to pay their suppliers early.

The Loan Finder groups them all under “Stock, trade & invoices”. If you’d rather just describe your stock cycle, tell us here.

An illustrative example

A sporting goods distributor orders its winter range in March, paying the supplier on dispatch. A trade facility pays the supplier; the range sells through May and June; the distributor repays each trade draw as its customers pay. (Illustrative only.)

What else is trade finance called?

Lenders, accountants and search engines don’t all use the same words. You’ll also see this entry described as Trade funding and Trade loan. In our A–Z index every one of those names points back to this page, so whichever term you searched, you’ve landed on the same thing. If a lender uses a name you don’t recognise, ask them to describe how the security, the term and the repayments work; that tells you far more than the label.

Where does it sit in the directory?

This entry lives on the trade, stock and asset shelf. It’s most often used for stock, trade and invoices, and the security usually involved is invoices, stock or orders. It is one of the quicker entries to put in place when the paperwork is ready. Its closest neighbours are:

• Import finance — Pay overseas suppliers, freight and duty before the container lands.
• Export finance — Bridge the long wait between shipping overseas and getting paid.
• Purchase order finance — Fund the supplier so you can say yes to an order bigger than your bank balance.
• Inventory finance — Borrow to buy stock, with the stock itself part of the picture.

To compare all of them at once, filter the Loan Finder by purpose and security.

Common mistakes to avoid

• Assuming every invoice qualifies. Funders exclude disputed, overdue, related-party and some progress-claim invoices, so check eligibility early.
• Overlooking concentration limits. If one customer makes up most of your sales, the available funding may be lower than expected.
• Not reading the minimum term. Some facilities have notice periods and minimum fees that matter if your needs change.
• Using it to mask thin margins. Trade and receivables funding works best when each transaction is profitable after finance costs.
• Poor record-keeping. Clean, up-to-date ledgers and stock records make approval smoother and limits higher.

What should I ask before signing up for trade finance?

A short list of questions saves a lot of regret. Put these to any lender or specialist before you commit:

1. What percentage is advanced? The advance rate on eligible invoices or stock decides how much cash you actually receive.
2. Which items are excluded? Know the eligibility rules for overdue, disputed and concentrated debts or stock.
3. How are fees charged? Discount charges, service fees and minimums can be structured very differently.
4. Is the facility confidential? Decide whether you’re comfortable with customers knowing a funder is involved.
5. What’s the minimum term and notice period? Exit terms matter if your business changes direction.

If an answer is vague, ask again or ask for it in writing. Good lenders are happy to explain their terms clearly.

Keep stock moving without starving cash

If supplier payments are squeezing your cash flow, trade finance can give you room to buy more and grow. The enquiry takes about a minute and carries no credit check. It goes to one specialist rather than being blasted out to funders.

Please describe your suppliers, typical order size and stock cycle accurately. That’s what lets us find a facility that fits. Start your enquiry.