How Supply Chain Finance Helps Businesses Amidst Tariffs
Supply chain companies are on high alert as the fallout from new tariffs, and the potential for additional tariffs play out in the global business world. As businesses take a hard look at their operations to anticipate change and conduct damage control, international trade finance companies offer exciting solutions for suppliers looking to tighten their belts and maximize their income and cash flow.
Last year, the United States imposed tariffs on many Chinese goods, creating an increase in cost for many companies. Even global supply chain companies who have not yet felt the impact of the Chinese tariffs may seek alternate suppliers and other ways to absorb potential cost increases.
Companies that don’t use Chinese goods directly are not immune to the effects of tariffs. Such companies may see increasing prices on raw supply materials and higher costs for products that may contain parts from China.
How Supply Chain Companies are Dealing with Tariffs
Proactive businesses aim for resiliency in their supply chains – with or without imposed tariffs. Global companies know business comes with the risk of disruption and mitigating risk is part of healthy operation. Some of the most common strategies include:
- Lobbying for an exemption
- Increasing the prices of products
- Moving production locales
- Sourcing new suppliers of raw materials
- Offsetting increase costs in manufacturing by reducing costs in other parts of the operation
As Chinese tariffs stand today, the United States has imposed tariffs on $250 billion worth of China’s products. Steps to increase cost efficiency in operations are at the forefront of the import and export markets.
Automotive dealers are also closely watching the tariff news. If the United States imposes a 25 percent tariff on imported vehicles and vehicle parts, supply chain businesses anywhere on the automotive line will feel the repercussions.
A survey of automotive dealers found industry leaders are pessimistic about the future. Only 11 percent of dealers surveyed indicated the tariffs would make the automobile industry stronger. According to industry officials, the tariffs could raise the price of new vehicles by nearly $3,000. Imported vehicle prices could jump even higher – by $3,700.
Automobile dealers – already dealing with all-time high new vehicle prices – believe the tariffs will put new vehicles out of reach for the average buyer. Dealers expect customers to shift their focus from purchasing new cars to used or pre-owned vehicles should these tariffs go into effect.
Export Factoring and Financial Solutions for Absorbing Tariffs
As tariffs take root and the possibility of more tariffs remains on the table, forward-thinking companies look to supply chain finance companies to stay competitive and improve cash flow.
While many business owners may look to traditional lending options to weather a tariff storm, bank loans often present problems for businesses. The underwriting can be extensive and time-consuming. Also, many businesses may not have the collateral on hand to support a bank loan since cash flow is often wrapped up in supplies or inventory. In addition, commercial lending requirements continue to tighten, making business loans out of reach for many global manufacturers.
Some of the best factoring companies provide financing methods that can help companies deal with the fallout of tariffs. Vendor financing, for example, provides additional capital when needed. These companies help broker a loan in which manufacturers borrow from vendors to purchase needed supplies.
For example, suppose a company is using a new supplier to avoid increased costs due to tariffs. As a manufacturer, the orders are locked in, but capital is short to purchase materials from your new vendor. A supply chain finance company brokers a vendor financing arrangement and the manufacturer repays the vendor.
The best export factoring companies offer solutions for global companies that are cash-strapped from tariffs. In short, export factoring allows a factor to buy a company’s accounts receivable in exchange for a percentage of the collectible amount. The company then has cash in hand and no longer deals with account receivable operations.
A supply chain finance company such as Tradewind purchases a company's accounts receivables for up to 95 percent of the value. Tradewind, considered a leading international trade finance company, then takes over the collection on the accounts. When payment is received, the finance firm forwards the agreed upon balance to the company, completing the business cycle.