Why to Consider Trade Finance This Holiday Season and in 2023

It’s beginning to look a lot like the holidays.

But unlike the indulgent spending pegged to the season, people may now be inclined to shut their wallets and settle, instead, for admiring the festive window displays. As we head into the homestretch of 2022, inflation remains at its highest pace since 1982, which has meant bumps in costs on everyday staples from baby diapers to gas. In one such instance of increased costs for essential items, prices for food rose 11.2 percent from September 2021, the U.S. Bureau of Labor Statistics reported.

Bigger investments have also felt the brunt of inflationary pressures. Costs related to shelter were up 6.6 percent in the past year, while price tags for new vehicles climbed 9.4 percent, according to the bureau. Amid the swell of inflation, individuals’ personal coffers, at one point filled with government stimulus checks and savings from the pandemic, have begun to empty out, putting a damper on shopping plans.

Discounts and promotions might be in order to lure in customers and sell off inventory this season. Brands and suppliers, who might also feel stretched for cash, can consider using trade finance to optimize their working capital.

Here are 3 ways that trade finance can benefit businesses this holiday season:

  • Preserve cash flow. When using trade finance services, a lender will purchase receivables from a business and provide them with funding of up to 90% of the invoice value. This percentage might vary from lender to lender, but what does remain true is that rather than waiting months to be paid by their customers, a business is able to receive immediate capital and avoid a cash flow shortage. In the case a retailer signs up for trade finance, their payables – instead of their receivables – will be bought, the manufacturer will receive early funding, and stores can submit payment for their bills at a later date.

    If retailers are forced to mark down their inventory for the holidays – and manufacturers receive less orders from their customers – balancing cash flow through a trade finance arrangement can be crucial to operating smoothly in 2023.
  • Maximize growth. By injecting liquidity into a business, trade finance also enables a retailer and their supplier to establish payment terms of up to 120 days in some cases. By enabling flexible payment terms, a manufacturer can increase sales. If sales are slow, which might be the case this season, a store can ensure their suppliers are paid while holding onto their cash for other expenses and strategic plans.
  • Enjoy credit protection. Credit protection, which is often included in trade finance solutions, guarantees payment even if a customer defaults. Although we are past the worst of the economic fallout from the pandemic, forecasts indicate there might be a recession in our future. For this reason, it’s important for a business to insure their receivables and stay financially healthy, despite any headwinds 2023 might bring.