Trade Finance Solutions Australia: Import & Export Funding for Businesses

By the Loan Phone team Reviewed by Anthony Moncada, M.App.Fin, Cert IV Finance & Mortgage Broking

Quick Answer

Trade finance solutions provide Australian businesses with funding to facilitate import and export transactions, covering purchase orders, inventory procurement, and international shipping costs. Common structures include letters of credit, documentary collections, and supply chain finance with rates typically 6-14% p.a. (indicative only) depending on transaction structure and business strength. Trade finance bridges the payment gap between ordering goods and receiving customer payment, with terms generally 30-180 days. Most providers require established trading relationships, confirmed orders, and minimum 12 months trading history, though specialist providers may consider newer importers or exporters with strong purchase orders.

You’ve secured a $200,000 offshore purchase order but need to pay your overseas supplier 50% upfront. Your working capital is tied up in existing inventory and customer credit terms. Trade finance provides the bridge funding you need to fulfill the order and grow your business.

What is Trade Finance?

Trade finance encompasses various financial instruments and products designed to facilitate domestic and international trade transactions. These solutions manage the payment and delivery risks inherent in buying goods from suppliers (particularly overseas) and selling to customers with delayed payment terms.

Trade finance differs from traditional business loans by being transaction-specific and self-liquidating—the finance is repaid directly from the proceeds of the goods being traded rather than from general business cash flow.

Types of Trade Finance Solutions

• Letters of Credit (LC): Bank guarantees providing payment assurance to overseas suppliers. Your bank promises payment to the supplier upon presentation of specified shipping documents. Protects both buyer and seller by ensuring goods are shipped and payment is made according to agreed terms. Fees typically 0.5-2% of transaction value plus establishment charges.
• Documentary Collections: Less formal than letters of credit, involving banks as intermediaries in document and payment exchange. Supplier ships goods and provides documents to their bank, which forwards to your bank for payment. Lower cost than LCs but less protection for both parties.
• Supply Chain Finance: Funding against purchase orders, invoices, or inventory throughout the supply chain. Enables payment to suppliers on shorter terms while maintaining your customer credit terms. Rates typically 8-14% p.a. with facilities reviewed quarterly.
• Invoice Discounting/Factoring: Finance against receivables from trade transactions. Sell your outstanding invoices at a discount to receive immediate cash. Particularly useful for businesses with 30-90 day payment terms who need working capital to purchase new inventory.
• Import/Export Finance: Specialized loans for businesses regularly engaged in international trade. Secured against goods being imported or export orders. Rates typically 6-12% p.a. depending on goods, trading partner countries, and business strength.

Explore invoice finance options and working capital solutions for related cash flow funding.

How Trade Finance Works

• Step 1: Establish Facility - Apply for trade finance facility with specialist provider. Assessment includes business financials, trading history, supplier/customer relationships, and industry experience. Facility limits typically $50,000-$5M depending on business turnover.
• Step 2: Transaction Initiation - Receive purchase order from customer or identify supplier inventory to purchase. Submit transaction details to trade finance provider for approval including goods specifications, pricing, delivery terms, and end customer details.
• Step 3: Funding Release - Once transaction approved, provider arranges payment to supplier according to agreed terms. This may be direct payment, letter of credit issuance, or guarantee provision.
• Step 4: Goods Receipt and Sale - Goods arrive and are either sold directly to customer (back-to-back transactions) or held in inventory until sale. Provider may hold security over goods until repayment.
• Step 5: Repayment - Repay finance from customer payment or direct from business cash flow. Interest calculated on actual days of funding used, making it cost-effective for quick turnaround transactions.

Trade Finance Benefits

• Improved Cash Flow: Pay suppliers without depleting working capital, enabling multiple concurrent transactions and business growth.
• Supplier Relationships: Meet supplier payment terms (often 50% deposit, balance on shipping) without cash flow strain, securing better pricing and reliability.
• Order Fulfillment: Accept larger orders than your cash position would normally allow, growing revenue without equity dilution.
• Competitive Advantage: Offer competitive customer payment terms (30-90 days) while maintaining your own supplier relationships through timely payment.
• Risk Management: Letters of credit and documentary collections reduce transaction risk in international trade by ensuring both parties fulfill obligations.

Who Needs Trade Finance?

• Importers: Businesses purchasing goods from overseas suppliers require funding to pay deposits and shipping costs before receiving customer payment.
• Exporters: Australian businesses selling internationally need funds to manufacture or purchase goods before receiving payment from overseas buyers.
• Wholesalers and Distributors: Companies with large inventory requirements and extended customer payment terms use trade finance to bridge the working capital gap.
• Manufacturers: Businesses purchasing raw materials from multiple suppliers need funding throughout production cycles before final product sales.
• Retailers: Seasonal businesses importing large inventory orders for peak periods require funding several months before sales occur.

Frequently Asked Questions

What’s the typical cost of trade finance? Trade finance costs vary by structure. Letters of credit typically charge 0.5-2% of transaction value plus $500-$2,000 establishment fees. Supply chain finance and invoice discounting usually charge 8-14% p.a. Interest is calculated only on days funds are actually used, making short-term transactions cost-effective.

Can new businesses access trade finance? While most providers prefer 12+ months trading history, specialist providers may consider newer businesses with confirmed purchase orders, strong industry experience, or business continuance from previous employment. New importers typically access smaller facilities ($50,000-$150,000) with growth available as track record develops.

Do I need to provide personal guarantees for trade finance? Most trade finance facilities require directors’ personal guarantees for unsecured structures. However, because trade finance is transaction-specific with goods providing implicit security, guarantee exposure is limited to outstanding transactions rather than entire facility limit. Secured trade finance backed by property or other assets may reduce personal guarantee requirements.

Speak with Specialists

Need expert guidance on your trade finance application? Email: loans@loanphone.com.au Website: www.loanphone.com.au

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