Import finance is the capital that is used to bring goods into the country. Import transactions can be a significant burden on a company’s cash-flow because the delays and complications often involved mean money is paid out long before the goods are delivered.

As well as the cash-flow burden, changing freight rates and import tariffs add costs and uncertainty to the transaction.   

Over the past decade, the rise in international trade has led to an increase in demand for trade (import and export) finance. There are clearly many benefits to importing, such as lower prices, higher quality goods and gaining a competitive advantage. However, that said, there are just as many challenges associated with doing business overseas, such as long payment terms, having to buy large volumes and over-trading (doing more business than available funds can support). All of which can lead to the business performing poorly or even failing.

The Problems

One of the major challenges of importing is a lack of trust and overseas suppliers demanding payment upfront before they manufacture and ship the goods to the UK. This can put a strain on cash flow, tying up funds for up 120 days until the end-customer invoice is paid.

Longer payment terms can leave businesses starved of working capital, and this is where import finance can help businesses to ease the pressure by raising additional capital to ensure prompt payment for suppliers, which in turn can free up working capital for other business needs.

How can Import Finance help?

There are many types of import finance, such as invoice factoring, import loans, bank guarantees, asset-backed facilities, amongst others, that help importers to raise capital as they source vital goods and raw materials from overseas suppliers. Import factoring is in the same family as factoring and invoice discounting. It speeds up the payment cycle and the regular and predictable payments offered by a facility can help to build trust and strong relationships with overseas suppliers, putting the business in a stronger position to negotiate better terms in the commercial contracts between buyer and seller.

Import factoring is appropriate for established businesses that have a track record in importing, good suppliers and confirmed purchase orders from creditworthy customers. Importers must purchase goods that are “finished” or raw materials in a “sellable” state, such as timber, in transactions that typically have a gross profit margin of 20%. The provider deals with the documentation as part of the factoring agreement, which makes the process faster and more efficient, avoiding any unnecessary delays. Facilities can include credit protection to minimise the risk of bad debt and the incorrect or untimely delivery of goods.

How Import Finance works

Import factoring works on a confirmed order basis from a good customer. The maximum amount advanced for imports is up to 100% of the order’s value. This type of working capital finance has been designed specifically to assist overseas trade by supporting the trade cycle from initial order to end-customer payment. The provider acts as an intermediary between the importer, the manufacturer and the end-customer, financing the entire transaction.

In this way, suppliers get paid quickly, which makes it easier for them to accept new orders and as a direct result, the importer may be able to negotiate early payment discounts. With a facility in place, the importer is in a stronger position to fulfil orders and accept new ones.