Many Australian wholesalers start by manufacturing overseas and deliver to local buyers. But what happens once you start selling to foreign buyers as well?

How do you fund your orders, deliver and offer credit terms to win orders?

Here’s the scenario:

You receive interest from a buyer in the United States to distribute your products. You’re currently manufacturing in China and need the stock to be shipped directly to the U.S to fulfill the order.

Your strong U.S customer is willing to place orders, however, they require up to 90-day payment terms (or sometimes more). The orders coming in are larger than expected and your Chinese manufacturer won’t ship the goods until they receive payment.

This creates a significant working capital gap. The profit and growth potential in the new distribution deals can’t be left on the table.

What funding is available to you?

The first contact is always the bank, they’ll either ask for cash or mortgage security, including passing the profit and serviceability tests. If you get past the gate you’ll qualify for a 180-day trade facility.

Failing the bank, you’ll likely come across an invoice factoring provider. Almost all providers won’t finance international receivables and they won’t advance funds pre-invoice for supplier payments.

Which leaves you with fixed-term lenders – These lenders will either ask for mortgage security or demand very high rates with regular repayments.

The issue with most of the above options is their inability to match the funding to your supply chain.

Funding, once goods have landed with your customers, doesn’t help you and making repayments on a fixed term loan defeats the purpose of why you need the funding in the first place.

Enter cross-border purchase order finance

A structured trade finance provider will seek to understand your entire supply chain. Most commonly looking at:

• The credit strength of your buyers (Costco, Forever21 etc)
• The type of products you manufacture
• Payment term with your buyer/s
• Your production time and supplier payments terms

The financier will seek to match the facility directly to the cash conversion cycle. This means that once they advance funds to the supplier, how long will it take for the buyers to receive goods and make payment.

The funding shouldn’t require any repayments from you, enabling the fulfilment to be completed and final repayment coming from the end customer/s.

This takes an enormous pressure away from the operations. Allowing you to continue regular trading without dipping into working capital.

The confidence to fulfil larger orders, pay suppliers and have the supply chain take care of the repayments has enabled structured trade finance to gain popularity.

See if Stak can help with your supplier payments.

.   .   .

We regularly share our thoughts on trade finance, lending, company culture, product strategy and design.

Stak works with clients that sell to some of the largest buyers in Australia & overseas.