As an owner of a business selling overseas or importing goods, you understand the importance of having access to cash. Capital is the lubrication keeping today’s global economy moving forward. At the center of it all are international trade finance companies like Tradewind Finance, who provides funds necessary for companies to grow and flourish.
Auto part manufacturers, distributors, and retailers create some of the most complex supply chains in the world. Businesses focused on the international trade of automobile products are excellent candidates for trade finance. Knowing when to engage a trade finance company could mean the difference between considerable market share growth and just surviving.
What Is Trade Finance?
Before we explore when it makes sense to contact a trade finance company, it is important to understand the basics. In general, an exporter will require payment of goods from an importer before they are shipped, if not sooner. However, many importers will have their capital locked up in inventory waiting for a sale.
On the other hand, even if the importer were able to fund the purchase of product, they would want reassurance purchased goods are shipped as agreed upon and arrive on time. Trade finance companies can step in and fill the needs of both parties by:
- Providing the funds to purchase goods from the exporter
- Monitoring the movement of goods from dock to door
- Controlling the terms of payment by the importer
The transaction is completed without requiring the importer to use its owned capital assets as collateral. Instead, the trade finance company vets both the importer and exporter thoroughly. If both entities check out favorably, the trade finance company controls the transaction in its entirety. The result is a win for every party involved.
Obtain More Favorable Repayment Terms
You have developed strong relationships with distributors and manufacturers around the globe. However, in today’s fast-paced trade economy, your partners may choose importers who can accept the shortest payment terms. If your organization requires lengthy payment options, exporters may seek other trading partners, leaving your organization standing empty-handed.
When an opportunity to enter a new market or grow market share rises, do not let payment terms submarine your company’s ability to meet the demand. Trade finance companies put up the capital necessary to meet even the most demanding terms of export companies. Partnering with a trade finance company gives you the buying power necessary to seize opportunities while the trade finance company offers you favorable repayment terms.
And the opposite holds true too. If you as the buyer are seeking longer payment terms with your suppliers, trade finance companies offer solutions to accommodate this arrangement as well.
Secure Customer Payments Faster
Providing favorable payment terms to customers is a competitive advantage. As a supplier, you may be offering 60, 90, or even 180-day terms to your customers. While longer payment terms can definitely secure long-term relationships, the generosity locks up valuable capital in inventory you no longer control.
When faced with requests for lengthy payment terms from customers or as dictated by a competitive landscape, trade finance can release working capital tied up in the transaction. Trade finance companies take over and manage the payment from customers while providing your company cash immediately. Faster access to your capital significantly reduces the time normally required to enter into your next selling agreement and increases the ability to grow.
Risk is part of nearly every international trade transaction. Your organization will face risks that normally are not encountered domestically. When handling all aspects of an international transaction, it’s important to be aware of the risks involved including:
- Credit risk
- Political instability
- Foreign currency fluctuations
- Cargo and transportation risks
- Import and customs regulations
Although technology has helped businesses reduce trade risk, managing and reducing exposures can be a daunting task. Even with the best risk management practices employed, exposure still exists that will always remain outside the scope of a business’ control.
If your organization is looking for a centralized solution to reducing and nearly eliminating trade risk, you should consider enlisting the services of a trade finance company. Not only do trade finance companies secure payments between importers and exporters, but they also protect from events and circumstances that would otherwise disrupt a successful transaction.
Financing Your Automotive Supply Business
Whether you are the buyer or seller, securing the flow of cash for overseas transactions is critical to your automotive supply business’ long-term success. Choosing a cash flow solution such as trade financing to address your company’s capital needs will leverage the benefits of liquidity with the security of risk transfer. Explore how trade finance can help your business by contacting the experts at Tradewind Finance.