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The warehouse end of a trade cycle, where stock waits between payment and sale

IMPORT, EXPORT & INVENTORY

Trade Finance

Your supplier wants paying before the container leaves. Your customer pays sixty days after it arrives. Trade finance funds the months in between so growth does not have to be paid for out of your own cash.

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  • Lender panel

    40+

  • Covers

    Import, export, inventory

  • Funds

    The trade cycle, not the balance sheet

  • Pairs with

    Invoice finance

Is this you?

If any of these are true, we can help.

Talk it through
  • An importer paying suppliers on deposit and balance against shipping documents
  • A wholesaler funding a seasonal buy months before it sells
  • An exporter who needs working capital between shipment and payment
  • A business whose supplier has withdrawn credit terms
  • A distributor holding stock across several warehouses
  • An owner whose overdraft is fully drawn every time a container lands

How it works

Three moves, in plain words.

  1. 01

    A limit is approved against your trading profile

    The lender assesses your financials, your supplier relationships, your customers and your history of turning stock into cash. Directors’ guarantees and a General Security Agreement are standard.

  2. 02

    You place an order and request a drawing

    The purchase order and the supplier’s invoice go to the lender, which pays the supplier directly, either against documents or through a letter of credit.

  3. 03

    A usance period starts

    The advance runs for a set number of days, chosen to cover production, transit and the time to sell. It should be set from your real cycle, not a standard number.

Fund the cycle, not the crisis

Talk about trade finance1300 015 267

Map the trade cycle first

Trade finance is sized against days, not against a feeling about how much cash you need. Write the cycle down and the facility almost designs itself.

A typical import cycle
StageWhat happensCash impact
Order placedDeposit paid to the supplierCash out
ProductionGoods manufacturedCash committed, nothing to sell
ShipmentBalance paid against documentsCash out
TransitGoods at sea or in the airCash out, no stock on hand
LandingDuty, GST, freight and clearanceCash out
WarehouseStock held until soldCash tied up
SaleInvoice issued on termsStill no cash
PaymentCustomer paysCash finally in

Add the days from the first cash out to the final cash in. That is the funding window. A business with a hundred and twenty day cycle that grows twenty per cent needs meaningfully more working capital than it needed last year, even though it is doing well. This is why fast-growing importers run out of money.

A hundred and twenty days between paying and being paid

This is why a growing importer runs out of money. Twenty per cent more volume through a cycle this long needs twenty per cent more working capital, in a year that reads well on the profit and loss.

Illustrative cycle only. Measure your own days from your purchase orders and your ledger.

View as a table
WhenWhat happens
Day 0Deposit paid to the supplier. Cash out, and nothing yet to sell.
Days 1 to 40Production. The money is committed and there is no stock on the floor.
Day 40Balance paid against shipping documents. The largest cash out of the cycle.
Days 40 to 70Transit, then duty, GST, freight and clearance the week it lands.
Days 70 to 90Stock held, sold and invoiced on 30-day terms. Still no cash in.
Day 120The customer pays. Four months after the first dollar left.

The detail

The instruments and what each one does

InstrumentWhat it doesWhen it is used
Letter of creditYour bank undertakes to pay the supplier once conforming documents are presentedNew supplier relationships; supplier will not ship on open account
Documentary collectionBanks handle the documents, without the bank guarantee of an LCEstablished relationships wanting document control at lower cost
Import or trade loanA short-term advance that pays the supplier, repaid when you sellThe core working capital instrument for importers
Inventory or stock financeFunds goods held in a warehouseSeasonal buys and long-holding stock
Supply chain financeYour customer’s financier pays you early against approved invoicesSuppliers to large corporates that run a programme
Export financePre-shipment funding to produce the order, or post-shipment against the invoiceExporters with confirmed orders
Bank guarantee or bondStands behind a performance obligation or a leaseTenders, leases, customs obligations
FX forward contractFixes the exchange rate for a future paymentAny import priced in a foreign currency

How a trade facility actually runs

  1. 01

    A limit is approved against your trading profile

    The lender assesses your financials, your supplier relationships, your customers and your history of turning stock into cash. Directors’ guarantees and a General Security Agreement are standard.

  2. 02

    You place an order and request a drawing

    The purchase order and the supplier’s invoice go to the lender, which pays the supplier directly, either against documents or through a letter of credit.

  3. 03

    A usance period starts

    The advance runs for a set number of days, chosen to cover production, transit and the time to sell. It should be set from your real cycle, not a standard number.

  4. 04

    Goods land and are sold

    Duty, GST and freight are usually funded separately or from your own cash, so budget for them. Some facilities will cover landed costs, which materially improves the cash position.

  5. 05

    The drawing is repaid

    Either from sale proceeds directly, or by rolling into an invoice finance facility that funds the receivable created by the sale.

  6. 06

    The limit revolves

    Repayment restores availability. A well-sized limit turns over several times a year, which is what makes trade finance efficient rather than expensive.

Why the limit is smaller than the volume

A limit is not an annual budget. It is the amount that has to sit out at any one moment, which is why a modest facility can carry a large program and why lengthening the cycle costs more than growing the volume does.

Illustrative projection only. Not a quote and not an offer of credit.

View as a table
Amount
Cost of goods moving through the year$2,400,000
Facility limit that supports it$600,000

The neat version of this is a trade facility joined to an invoice facility. Trade finance funds you from paying the supplier to issuing the invoice. Invoice finance funds you from issuing the invoice to being paid. Together they cover the whole cycle and your own cash stays free for the business.

Trade finance covers

  • From paying the supplier to issuing your invoice.
  • Deposit, balance against documents, transit, and the days the stock sits in a warehouse.
  • Repaid from the sale, or rolled into the receivable that the sale creates.
  • Sized on the trade cycle: days multiplied by the cost of goods moving through them.

Invoice finance covers

  • From issuing your invoice to being paid for it.
  • The thirty, sixty or ninety days your customer takes under their own terms.
  • Repaid when the customer pays, with the retained balance released to you less fees.
  • Sized on the ledger, so it grows as sales grow rather than sitting at a fixed limit.
Usance period
The number of days a drawing runs before it falls due. Set it from your real cycle, not from the lender’s standard number.
Open account
Trading where the supplier ships first and invoices you, with no bank undertaking in between. The cheapest arrangement, and usually only offered once a relationship is established.
Landed cost
The true cost of goods on your floor: supplier price, freight, duty, GST and clearance. A margin worked out on the supplier price alone is a fiction.
Documents of title
The shipping documents that control who may collect the goods. Under a letter of credit the bank holds them while the container is in transit, which is much of its security.

What lenders look at

  • Trading history and profitability. Trade finance is generally for established importers, not first shipments.
  • The goods. Commodity or fast-moving stock is easier to fund than bespoke, perishable or fashion-dependent items with a short selling window.
  • Supplier reliability. A long relationship with a supplier who delivers on specification reduces the lender’s risk considerably.
  • Customer quality and concentration. Who buys the stock and how reliably they pay.
  • Stock turn. Slow-moving inventory is the biggest single risk in the product, because the repayment source sits on a shelf.
  • Existing security. As with invoice finance, prior PPSR registrations over stock and receivables have to be resolved before a facility can settle.
  • The ATO position, which is checked. Unpaid GST on imported goods is a particular focus, for obvious reasons.
Freight in motion, where the money sits between paying a supplier and being paid by a customer
Stock turn is the number the whole assessment hangs on. A facility repaid from sales is only ever as good as the speed the goods leave the shelf.

The costs to budget for

Trade facilities carry more line items than a simple loan. None of them are unusual, but they should all be in your landed cost model.

  1. 01Establishment and annual facility fees on the limit.
  2. 02Line fees charged on the limit whether or not it is drawn.
  3. 03Interest or discount charged on each drawing for the days it runs.
  4. 04Letter of credit issuance, amendment and negotiation fees, which are per transaction and add up on frequent shipments.
  5. 05Documentary handling fees at both ends.
  6. 06FX margin on any currency conversion, which is often the largest hidden cost of the whole exercise.
  7. 07Duty, GST and freight at landing, which are yours unless the facility expressly funds them.

We deal with the lenders. You deal with the containers.

WeL’nd

When trade finance is not the answer

  • Your stock is not turning. Funding more of a slow-moving line makes the problem larger, not smaller. Deal with the stock first.
  • The margin does not carry the finance cost. Work out the funded cost per unit before committing to a season.
  • You sell to consumers on the day, with no debtor cycle. Then your gap is stock only, and inventory finance or an overdraft may be simpler.
  • The business is behind on tax and suppliers, and the real issue is a structural debt position. That is a consolidation conversation before it is a trade conversation.
  • You are a first-time importer with no track record. Start with supplier terms, deposits and a smaller order, and build the history that makes a facility available.
Dave Pham, Head Broker at WeL'nd

“Tell me the number. I have almost certainly seen worse.”

Dave Pham · Head Broker

Talk to Dave1300 015 267

FAQ

Questions people actually ask

If yours is not here, ask it. We would rather answer the awkward one early than have you find out later.

1300 015 267
What is a letter of credit?
A letter of credit is an undertaking from a bank to pay your supplier once the supplier presents documents that comply exactly with the terms set out in the credit. It gives the supplier certainty of payment and gives you certainty that payment only happens against the right documents. It costs more than open account trading and is common with new suppliers.
How is trade finance different from a business loan?
A business loan gives you a lump sum with a repayment schedule. Trade finance funds a specific transaction for a specific number of days and is repaid from the proceeds of that transaction. Because it revolves through the year, a smaller limit can support a much larger volume of trade.
Can trade finance cover duty, GST and freight?
Some facilities will fund landed costs and some will not. It makes a real difference to your cash position, because duty and GST fall due before the goods are sold. Ask the question specifically when comparing offers rather than assuming the answer.
Do I need to be an established importer?
Generally yes. Lenders in this space are underwriting your ability to convert stock into cash reliably, and that is demonstrated by history. A first-time importer usually funds through supplier terms, deposits or a general working capital facility, then moves to trade finance once there is a track record.
Can I combine trade finance and invoice finance?
Yes, and it is the most effective structure available to an importer. Trade finance funds you from paying the supplier to issuing the invoice, and invoice finance funds you from invoice to payment. Together they cover the whole cycle. It usually works best when both facilities sit with providers that will agree ranking between themselves.
How is the limit decided?
By your trade cycle and your volume. The lender looks at how many days pass between paying a supplier and being paid by a customer, multiplied by the cost of goods flowing through that window, then applies its own view of risk. A longer cycle needs a larger limit for the same turnover.
What happens if the stock does not sell?
The drawing still falls due at the end of the usance period. This is the central risk in the product and why stock turn matters more than almost anything else in the assessment. If a season goes badly, talk to the lender early rather than at the expiry date.
Does trade finance help with foreign exchange risk?
The funding and the currency risk are separate problems. A trade facility solves the timing. A forward contract or another hedging instrument fixes the rate so your landed cost is known. Most importers need both, and the FX margin is often the biggest cost in the whole arrangement.
Will the lender take security over my stock?
Almost always, through a General Security Agreement registered on the PPSR, along with directors’ guarantees. Where a letter of credit is involved, the bank also has control of the documents of title while goods are in transit. Existing registrations by other lenders need to be resolved before settlement.

Credentials

  • Credit Representative 554029
  • ABN 20 672 801 651
  • FBAA member
  • AFCA external dispute resolution

Related

Other ways we can help

Reading

Worth understanding first

All of business finance

Where we work

Fund the cycle, not the crisis

Send us your purchase orders, your terms and your stock turn. We will size a facility against the real cycle rather than a round number.

Or call us

1300 015 267

Monday – Friday, 09:00 to 17:30

Dave Pham, Head Broker at WeL'nd

“Tell me the number. I have almost certainly seen worse.”

Dave Pham · Head Broker

Talk to Dave1300 015 267

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