One of the most detrimental challenges a small or medium-sized enterprise (SME) can face when exporting is securing affordable and consistent financing. Despite their significant contributions to global trade growth, SMEs still tend to have the most difficulty fulfilling day-to-day cash flow obligations. International trade finance companies provide financing opportunities that facilitate business growth in foreign markets. Below, you can learn about the five benefits of international trade financing for SMEs.
1. Scalable Financing
SMEs account for 20% of US exports but lack access to financing that can promote their scalable growth. Trade financing offers flexible, secure, and scalable cash flow solutions that can meet growing business demands. By eliminating the high-cost barriers that SMEs typically face, exporters can ship more goods, thereby increasing productivity significantly.
Factoring provides credit protection, working capital, and collection services that simplify the delivery of goods and services to foreign buyers. Funding is based on the value of your confirmed invoices, not your credit, providing more flexible and scalable financing options than traditional bank lending programs.
2. Increased Cash Flow
Exporting merchandise requires sellers to maintain long working capital cycles. Additionally, it’s common to experience waiting times up to 90 days between the arrival of your goods and the receipt of payment. These delays often limit how many orders an SME can fulfill within a given timespan.
Trade financing solves these short-term cash flow challenges by issuing your payment within days, instead of months. With the necessary credit arrangements in place, you can expand your transaction flow and take control of your trade cycle, instead of waiting for payments to verify. As a bonus, you’ll be able to offer your customers longer payment terms, which will help you compete for better negotiation conditions.
3. Guaranteed Payment
Importers want to complete payment after they receive their merchandise, but exporters want to be paid before sending out their shipments. Trade financing bridges this gap by advancing your payment. When working with foreign buyers, there’s always a risk of a financial loss if your customer becomes insolvent. A trade financing intermediary will assume the risks of collecting payment backed by non-recourse credit protection.
Financing based on your clients’ credit, not yours, limits their maximum credit availability to ensure your invoices are paid in full. Since the creditworthiness of your clients undergoes monitoring, your company is protected from potential market failures. You’ll have the maximum level of financial protection, securing your transactions and increasing your potential for profitability.
4. Market Experience
As an SME, it’s unlikely that you have extensive experience with international markets. Trade financing experts are knowledgeable about the compliance requirements of individual foreign markets. You’ll have access to currency regulation control and other region-specific services that encourage turnover growth. Meanwhile, advanced market insights and on-site support will help you establish best business practices.
Banks can oversee many details regarding the specific borrowing needs of SMEs, and often lack the flexible financing options that SME exporters need to realize their growth objectives. Your trade finance partner will help you create customized solutions that meet the distinct needs of your company.
5. Simplified Paperwork and Processes
Setting up a trade finance account is significantly faster and easier than applying for a bank loan. Additionally, trade financing simplifies your paperwork and back office processes. Collection, reporting, and bookkeeping will be done for you so you can focus on closing new sales.
In addition to funding your exports, you can also support your entire supply chain through a process called reverse factoring. By leveraging your company’s off-balance sheet credit, you can offer early payments at a lower cost. Your suppliers will have access to increased cash flow that helps them keep up with your increased production demands. These favorable payment terms can help you and your supply network achieve stronger financial positions and establish a presence in new markets.
Supply chain finance and factoring companies can eliminate the risks of foreign trade by reimbursing you in the event of client insolvency. Furthermore, the creditworthiness of your customer will be verified through credit monitoring to minimize your risk exposure. You’ll also have access to regional market insights that help you stay compliant with foreign regulations.
Access to effective financing options can help SMEs overcome the challenges of international sales. International trade financing helps small and mid-sized businesses meet their growth targets by increasing short-term cash flow. Scalable financing offers the flexibility that gives you better control over your trade cycle. If you’re considering expanding your international business relations, trade financing from an international trade finance company like Tradewind can provide the most effective solutions for entering new markets.