What is the Difference Between Invoice, Vendor, and Import Financing?

For today’s global manufacturers and businesses, international trade finance companies are a valuable resource. Trade finance companies can improve supply chain operations with more consistent cash flow and other creative finance solutions.

Trade finance involves a high overview approach to your supply chain to locate inefficiencies and stretch your company’s capital. The beauty of working with a trade finance company is access to multiple strategies to improve the financial workings on every part of your supply chain – all within one financial resource.

One of the challenges in growing a global supply chain business is maintaining enough cash flow to cover many moving, and sometimes unpredictable, parts. To this end, the best factoring companies provide solutions that help global businesses run efficiently and reach their potential. The most useful trade finance tools include invoice, vendor and import financing.

Vendor Financing

Vendor financing provides capital right when you need it. Often, applying for traditional bank loans is out of the question when manufacturers need fast cash flow. For example, suppose the demand for your product increases faster than expected. You are awash with orders, but your supply inventory is scheduled to take a downturn in the coming weeks.

The problem is you don't have enough capital on hand to meet the increase in demand. A bank loan may take weeks to underwrite, and you don't have enough time. In such a case, vendor financing can play a critical role in helping you meet the increase in demand.

Vendor financing involves borrowing from your vendors to purchase the supplies you need. For example, a textile manufacturer is facing a spike in demand due to a new agreement with an overseas retailer. The manufacturer has the orders but is short on capital to purchase material from its vendors. Vendor financing allows the manufacturer to borrow capital from the vendor to buy the supplies. The manufacturer then repays the vendor with interest.  

Vendor financing is a useful tool when manufacturers have an unanticipated spike in demand and not enough cash on hand to meet it. 

Invoice Financing

Invoice financing is another example of trade finance that is of great use to global supply chain companies. While vendor financing looks to your vendors and suppliers for methods to increase your capital, invoice financing utilizes the relationships you have with your buyers.

Suppose your company is poised to take a greater share of the market, but you don’t have the needed capital on hand, since most of your cash is already tied up in inventory suppliers or receivables. Rather than miss the opportunity for growth, consider invoice financing. Invoice financing involves selling your receivables or invoices for a percentage of their value. The purchaser – a trade finance company – immediately extends the agreed upon amount of the invoices to you. The finance company then collects full payment from your buyers when it’s due, working directly with them. When the invoices are paid, the trade finance company pays you the balance.

Invoice financing has some unique benefits for supply chain businesses. One, it provides a rapid influx of cash so you can meet demand spikes. Also, it helps streamline operations as the receivables part of your business is taken over by the trade finance company. 

Import Financing

Import financing solves the many financial complications that arise from today’s global supply chain businesses. The benefits of international trade – competitive advantages, higher quality goods and supplies, as well as lower prices – far outweigh the challenges. Still, the financial dynamics can be significant. Global supply chain businesses often deal with slow cash flow as funds are tied up. Longer payment terms from buyers can also create a long tail on receivables. Even difficulties dealing with currency exchanges and tariffs can be eased with import finance strategies.  

Through import financing, trade finance firms can help you import/buy additional pre-sold product from your vendors via letter of credit or documentary sales terms. These arrangements are especially conducive to very high-growth or seasonal businesses.

Tradewind for Your Financing Solutions

Tradewind, a leading international trade finance company, can help solve the many cash flow challenges that your business may face. Finance companies like Tradewind use tools to shorten the payment cycle and increase healthy relationships among supply chain partners by providing timely and adequate tools for all. They also can help support longer payment terms, assist with transactions in multiple currencies, provide the capital needed for business growth, and help fund increases in inventory levels when necessary.

Tradewind’s supply chain financing options enable you to keep up with orders by paying your suppliers until you can sell the merchandise. Their export factoring solutions help you keep your doors open by advancing payment for the merchandise you ship. Tradewind buys your invoices and acts as the middle man. They pay your customers or pay you to keep the business cycle rolling. For global businesses, Tradewind’s financing can help make the most of every dollar, everywhere in your supply chain.