What is Trade Finance?
Trade finance is a term often used by the finance industry to describe a number of different activities, however, in its simplest form , trade finance is most commonly used explain a funding process where a supplier requires a purchaser to prepay for goods shipped.
A trade loan is ideally for businesses who:
- Have a large inventory holding compared to turnover
- Run a large overdraft purely because of long inventory hold times
- Deal with debtors who pay on long terms i.e. 60 or 90 days.
- Deal with suppliers who require upfront payments or offer large early payment discounts to debtors.
How trade finance works:
A trade loan captures the entirety of the a business cash conversion cycle, that is – the ordering process, the holding period and the debtor collection days.