Trade Finance Can Help You Save Money

Working capital is the life-blood of any business but for small businesses that do not have the cash resources of bigger firms; cash is the difference between survival and closure.  It is not too extreme to say that short-term finance is the single most important issue for any business. This can be particularly important if you need trade finance for new stock for example.

 

A Profitable Business Can Fail Without Working Capital

Many business owners would be amazed at how uncertain their financial situation might be.  Unless you have an internal finance person r you ask your accountant to make cash-flow forecasts, you really do not know your fiscal position.

 

It usually amazes people the different outcomes if their accountant offers to run some financial scenarios. For example, it is entirely possible for a business to run short or even medium term losses and still stay afloat if they have sufficient cash-flow.

 

On the other hand, a profitable company can very easily go out of business simply because they do not have enough cash on hand or working capital in the bank.

 

Trade Finance – Your Opportunity

Often in business, smaller firms lose out on opportunities to buy supplier or stock at discount because they do not have sufficient cash available to fund the purchase.

 

To overcome this, a company can look at trade finance. In this case, you can “sell” an invoice to a finance company like Fifo Capital. They will provide the cash within 48 hours so that you can complete the purchase of your stock or components.

 

Working Capital Is The One And Only Factor That Keeps A Business Viable.

Even if your company is posting record sales, that does not guarantee your commercial survival.

 

In fact, record sales can be a strong indicator that your business is potentially at risk. This is typically for one of three reasons.

 

Your sales people are discounting price and as a result are winning lots of orders.

 

Alternatively, if you have increased sales figures, your business may be at risk because to fulfil those extra orders, you need to buy more materials, stock or hire more staff.

 

The third common reason that high sales can cause your financial problems is that your new or expanded customers have significant credit terms, so you are funding business growth with no cash income.

 

Whichever, scenario, without the cash going into your bank account, your business can very quickly be put under serious financial stress without access to short-term finance of some type.

 

What Forms Of Short-Term Finance Are Available?

There are many different types of short-term finance but four key ones are discussed below.

 

Overdraft

In previous times many businesses ran on their bank overdraft facility.  These days, banks are much less likely to allow an overdraft.  In fact, they can and regularly do call in overdrafts at short notice.  If you cannot repay the overdraft there can be severe penalties including forcing the closure of your business.

 

The risk is all yours.

 

Business Loan

You can apply for a loan for your business but again, banks or other lending institutions are more rigid in their lending policies. Further, there are again strict controls placed on you when your company goes down the business lending route.

 

Director’s Capital Input

For many business owners, the easiest short-term finance option is for them to simply inject more of their own capital. This is frequently a struggle as they tend to have already committed a significant amount of capital to the business.  A further call on their personal resources can be stressful for their family.

 

Factoring

One short-term trade finance option is factoring. Even though it is a business financing method that is over six hundred years old, in recent times it has undergone some interesting and useful developments.

 

The most important of these is that rather than selling the entire order book to business factoring companies, you decide how much short-term finance you need.  Then you select a single invoice and sell that at a discount to the factoring service firm to generate the working capital you currently need.

 

An advantage with this method is that you do not have as much risk because your customer is the entity that is obliged to pay the invoice to the factoring company.

 

For more information on single invoice discounting as a means of short-term trade finance to generate more working capital, look for a factoring company in New Zealand.