In any trade, there is a risk to both the supplier and the buyer. Trade finance was originally introduced centuries ago to reduce transactional risk. Factoring is a valuable trade finance tool that includes both financing and credit protection. Over time, buyers and suppliers alike learned about the additional benefits trade finance can bring to the table.
Trade finance can be helpful for dozens of industries that include manufacturing goods as well as services. However, there are six sectors where trade finance has traditionally be most beneficial:
- Apparel and textile
- Food and beverage
- Gaming and media
- Industrial and mechanical
International factoring companies including Tradewind, work with exporters who often require payment up front to reduce default risk while their buyers want to ensure their goods are shipped and arrive in good order. Trade finance solves the problem faced by both parties while providing benefits not available through traditional financing and payment arrangements.
Reduce Supplier Risk
Suppliers face payment risk. In the electronics industry, the risk of not receiving timely payment is compounded by the sheer speed at which the industry moves. While products such as durable goods can have a lengthy shelf life, electronics can become obsolete within months.
Inserting trade finance between electronics trading partners ensures suppliers receive payment before a single piece of equipment leaves the warehouses. The risk of carrying outdated electronics shifts to the underwriters fronting the trade financing should payment fall through. This protects electronic manufacturers and distributors from getting stuck with outdated inventory.
As more automobile factories open up across the country, the dependence on orchestrated supply chains has become increasingly important. Whether supporting building new automobiles or supplying the weekend racer, trade finance plays an important role in keeping the wheels turning.
By increasing the purchasing power of domestic manufacturers and retailers, the numerous parts required to build automobiles can be shipped under tighter delivery timelines. This tightening reduces the cost of carrying inventory and the time necessary to meet custom orders.
For most companies in the apparel and textile industry, volume equals profits. The ability to buy in bulk often means the difference between slim margins and large profits. Trade finance facilitates the ability for even the smallest business to buy in bulk.
By reducing the unit cost, profits increase. And, for those building their brand, inventory can be controlled at the retail level, instead of by the manufacturer. This allows businesses to create their own demand, a feat usually reserved for the precious jewel industry.
Diversify Supply Chains
The food and beverage industry is reliant on consistent supply chains. Unfortunately, many products depend on agriculture where complex weather systems and growing methods influence the variables affecting the raw goods. The level of predictability in quality expected in other industries just does not exist when manufacturing food products.
One of the best ways to maintain quality levels is to have access to multiple suppliers. Trade finance allows businesses of nearly any size to leverage capital in a way that opens the door to multiple suppliers across the globe. This access provides the ability to diversify suppliers or shift entire orders to a more capable partner.
While technology pushes on at an unprecedented rate, businesses in the gaming and media industry can see explosive demand fueled not only by technological advances but also by social acceptance. When a new gaming console or peripheral takes hold of a gaming genre, it can be impossible to keep up with the orders.
Trade finance can provide the capital needed to meet demand levels that can be large, but short-lived. The financing available through trade finance will allow gaming and media companies to react quickly to today’s marketplace, capturing the new channel of revenue and profit.
Reduce Currency Risk
The industrial and mechanical industry isn’t known to be quick or agile in most regards. When export import companies trade overseas, any delay in production could subject purchasers and suppliers to currency rate risk.
Foreign currency markets are operating 24 hours a day and only close over the weekend. Events occurring overnight can have a dramatic impact on the cost of currency the following day. Trade finance gives both parties an even and steady playing field. Trade companies like Tradewind offer trade finance facilities in multiple currencies, eliminating upfront all risk resulting from currency exchange.
At its core, trade finance bridges the gap between exporter and importer providing for the smooth flow of goods across the globe. Trade finance is the lubrication keeping the world’s economy growing. With an estimated 80 to 90 percent of worldwide trade relying on its use, trade finance can help companies grow and flourish in today’s global marketplace.
Tradewind is one of the best international factoring companies that provides tailored cash flow solutions for its global clients. Focused on the mid-market, Tradewind offers financing, credit protection, and collections for the world’s exporters and importers.