What is import finance & how does it differ from invoice factoring?

What is import finance & how does it differ from invoice factoring?

Import finance is the working capital that is used to bring goods into Australia or shipped from an overseas supplier directly to a foreign buyer.

Import transactions can be a significant drain on cash-flow. The delays and impact on operations often result in money being paid out long before the goods are delivered.

As well as the cash burden, changing freight rates, foreign exchange and import tariffs can add uncertainty to the transaction.

Over the past five years, the rise in international trade has led to an increase in demand for Australian trade (import and export) finance. There are clearly benefits to importing; lower prices, higher quality goods and gaining that competitive advantage.

Challenges associated with overseas trading involve:

  • Long payment terms
  • Buying large volumes and;
  • Overtrading (doing more business than you can afford)

The above can lead to poor performance or even failure due to inadequate funding lines (or incorrectly matched working capital facilities)

The problems facing Australian importers

A major challenge of importing is the lack of trust with overseas suppliers requiring payment upfront before they manufacture and ship the goods to Australia or abroad.

This strains cash flow, tying up funds for up 120 days until the end-customer invoice is paid.

Longer terms can leave businesses starved of cash, this is where import finance helps to ease the stress by injecting additional capital to enable immediate payment to suppliers, freeing up working capital for other operational expenses or growth opportunities.

How does Import Finance help?

There are many types of funding options, such as invoice factoring, import loans, bank guarantees and asset-backed facilities that help importers to finance goods from local or foreign suppliers.

A true import financing facility will directly match your cash conversion cycle. Advance payments to suppliers are repaid by the end customer invoices or borrowers can elect to make direct repayments before stock converts to invoices.

Generally, this alleviates the need for any repayments making it a highly attractive method of funding the supply chain.

How does Import Finance operate?

Import finance works on confirmed orders or a contract basis from creditworthy customers. The amount advanced for imports is up to 100% of the suppliers costs.

It has been designed specifically to assist overseas traders by supporting the trade cycle from initial order to end-customer payments. The lender acts as an intermediary between the importer, the supplier and the end-customer, providing funding across the entire transaction cycle.

Supplier relationships are enhanced and paid quickly, bolstering confidence to accept your new orders and can usually result in negotiated payment discounts.

How does Invoice Factoring differ?

Invoice Factoring is the financial transaction of advancing a large portion of the value of an invoice immediately after the product is delivered to the customer.

Instead of waiting for Net 30 to up to Net 90 days to get paid, a factoring company is able to reduce the wait to virtually net zero, by advancing 70-90% of the invoice amount.

After the full payment has been received from the customer (after the agreed net payment terms) the accounts receivable financing company will transfer the remaining portion of the invoice, minus the cost of factoring.

Import financing is specifically designed to fund supplier payments before an invoice exists, giving an enormous boost to importers without having to dip into their own cash flow.

See if Stak can help your supply chain

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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.

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