Doing Business Abroad: How to Implement International Trade Finance

Making the leap to international sales is an exciting move for a business. It can bring more (and larger!) customers, more demand, and perhaps a new openness to explore product innovation based on regional preference.

If a supplier decides to expand their reach and begin selling products to different countries, there is support available to help with the process. To start, a company must determine what they need. The first thought might be capital, which is often required for growth endeavors–but the support doesn’t have to stop there.

Introducing trade finance

International trade finance is a comprehensive set of tools that can equip a business with financing, collections services, and credit protection to navigate new markets successfully.

Trade finance uses techniques called factoring, also known as invoice financing, and reverse factoring to generate liquidity— or cash, plainly put — for a business through the purchase of their receivables. Many brands can’t think of expanding without still having enough cash to pay expenses and vendors on time. Through these financing techniques, a trade finance firm creates working capital for a business to balance growth and keep operations running smoothly.

One of the big perks of expanding abroad is opening more doors to previously untapped retailers and distributors. Catching a metaphorical “big fish” buyer requires a supplier to meet some requests first, however. One of these is agreeing to longer payment terms.

The good news is that the financial firm buying the receivables can also accommodate extended payment terms with customers. Since open account terms are now the new normal in trade, having a financial partner that can finance longer payment terms will ensure a business has the cash flow they need while waiting for their invoices to be paid. Customers, in turn, are usually happy to have more time to pay.

When invoices are ultimately due, the trade finance firm collects payment from customers. If a customer defaults on their payment due to insolvency, the finance firm covers the nonpayment through the credit protection they provide. All and all, working with an international trade finance firm reduces trade credit risk, which can put a business at ease when they decide to sell outside of their country.

Some financial companies solely offer domestic factoring. When a supplier evaluates whether to work with a financial partner, they should check if they provide international trade finance. Whether a business is choosing to sell into the United States or is based in the U.S. and looking to grow sales globally, this type of cross-border financing creates liquidity and security to do so.

Factors to consider when selling internationally

Venturing into new countries has its obstacles. There are language barriers and different currencies and regulations in use. An international trade finance company can fund cross-border trade in whatever the desired currency is, so a business can rest assured that their cash advances can be utilized right away, for instance, in settling payroll.

Not only does an international trade finance firm provide tools related to payments and cash flow, but they also offer resources like legal expertise and on-the-ground support and insights from their local teams.

If a business is not sure what the shipping rules are, or if there is political turmoil in the country where their products are being delivered, or even if there is a delay in orders due to natural disaster, all these scenarios and more can be handled by a team of experienced trade finance professionals.

What types of businesses can sell internationally?

International sales are not just designated for the large, established supplier. Small and medium-sized businesses can also join the global marketplace and thrive there.

International trade finance firms provide funding based on a business’s customers’ creditworthiness. So if a brand has a short operating history or weaker financials, they can still receive financing if their customers have a strong standing.

What’s more, if a bank has rejected a business, they can still qualify for trade financing from an alternative lender. Traditional loans often come with strict regulations, and small- and medium-sized businesses can struggle to qualify for them. On the other hand, trade financing offers flexibility, and because funding is based on the business’s customers, companies can have more success obtaining the cash flow they’re seeking.