What is multi-jurisdictional financing & why is it so hard to find?

What is multi-jurisdictional financing & why is it so hard to find?
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You or your client has just secured foreign buyers and about to experience international sales growth.

The problem: You’ve got strong buyers wanting your products and funding the growth will starve your business of working capital to procure the goods.

What is multi-jurisdictional financing?

Simply, it’s pertaining to more than one jurisdiction (WIKI). Not so simple is how financiers perceive this risk related to their power or authority to recover goods or payments in other countries.

Financing across multiple borders requires expertise, skills which are often left to highly specialised trade teams that are hard to find.

Which country should you source your funding from?

Knitting together a comprehensive cross-border financing (Breakdown) solution that leverages the strength of your supply chain can be extremely challenging.

The following needs to be considered when choosing a funding provider:

  • Complex Corporate Structures (AUS based entities + foreign registrations)
  • Sales and Collections in Foreign Currencies
  • Foreign Credit Risks
  • Increased Liquidity Needs (Will credit grow with increased sales)

Structured inventory and/or purchase order finance

When it comes to funding orders from foreign buyers to pay suppliers, the counterparty risk is paramount. Assessment of purchase contracts, supplier production terms, and payment structures are not for the faint-hearted.

Commonly we’re referring to a business that third-party manufactures and distributes or wholesale goods.

Local Australian based manufacturers or producers (food, wine etc) can also be financed however, this falls into the bucket of production funding which will be discussed in another post.

What is purchase order finance?

Purchase Order Finance is a short-term transaction based financing tool that allows companies to purchase or manufacture goods that have been presold to their creditworthy end customers.

It’s an equity alternative enabling companies to achieve sales and profits otherwise not attainable without diluting existing ownership or losing operational control.

It can operate as bridge financing working alongside a company’s existing financing facility (asset-based lender, factor, or traditional line of credit) depending on the strength and type of senior lenders.

This type of funding closes the cash flow gap that exists between payment to the supplier and repayment from the end customer. Suppliers require payment before production starts or prior to shipment whereas end customers demand payment terms once goods have been delivered.

How is this different from bank lending?

A bank lends money based on a client’s balance sheet and income statement—financial ratios, net worth, etc., as well as cash collateral, certificates of deposit, and real estate.

A purchase order or trade financier bases its funding not solely on the income statement and balance sheet, but rather on the client’s ability to perform and the creditworthiness of the client’s end customers.

A bank is often capped as to the amount it will be willing to loan to a client determined by the client’s balance sheet and income statement.

The amount of funding that a trade financier provides is dependent on the size of the purchase orders or contracts from the end customers and the client’s abilities to perform.

Once your sales are outpacing available financing lines, equity or capital you’ll need to act fast.

Purchase order financing can give you the ability to perform across multiple jurisdictions, as long as the provider has the expertise.

Find out if Stak can support your international growth

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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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