Shipment of Importing

What is Trade Finance?

Video Transcript

Trade finance is a term used to describe a form of business debt funding that is used to facilitate international purchases of raw materials and or inventory from international suppliers. Trade Finance is different from traditional debt, which is used within a business for general operational expenses and or capital purchases. Whereas Trade Finance can only be used to pay suppliers for goods to be on sold to the customers of that business. The financier typically makes payment directly to the supplier rather than to the borrower and this is done by various financial instruments such as: letters of credit, credit card facilities, online portals or even direct EFT payment to the supplier by the financier. With the emergence of alternative finances like OptiPay over the last decade, trade finance is now available to SMEs that previously would be unable to access this form of finance. And by using third party funds, the business owner does not have their own valuable working capital tied up in goods being shipped to Australia for 6 to 8 weeks. Also sometimes called Purchase Order finance, this funding allows a business to accept a confirmed purchase order from their customer for the sale of product, knowing they have the finance required to purchase the product from their international supplier and complete the sale. This gives a business owner great confidence to market their product to their customers up front without fear of being unable to complete the sale due to lack of funding or finance.

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