What is pre-shipment financing?

What is pre-shipment financing?

Pre-shipment finance generally covers a working capital facility to fund the purchase or production of goods for a confirmed import or export order.

Import/Export orders are typical for local Australian manufacturers, producers, assemblers, and distributors.

Operators require working capital to cover a purchase order from an overseas buyer to purchase raw materials for subsequent manufacturing of final goods, warehousing, or to arrange for the transportation of goods.

Funds earlier in the value chain

Receiving capital required to fund the purchase or production of goods related to orders can have an incredible impact on the speed and relationships within the supply chain.

Customer may be able to negotiate better contract terms with the buyers and obtain supplier discounts for larger orders.

From the time your order gets confirmed any delays related to a supplier going into production or your production and shipment can have compounding effects down the track.

Failure to be capitalised for orders often equates to supply chain delays becoming highly disruptive, time-consuming with an erosion of profit margin.

Funding import and export orders

Trade financiers will typically finance up to 70% of the individual Import or Export Order with the end sale price being higher than the buying price or production costs. In most cases, this achieves 100% of supplier costs.

The typical term under this facility is around 90 days or less, but this may be extended, depending on the cash conversion cycle up to 120 days. In some cases, this has been extended beyond 120 days though rare.

Trading internationally involves risk – the time between the start and completion of a transaction needs to minimised across all touch points. The key to success is to plan your working capital effectively during the trade cycle” Leigh Dunsford, Director at Stak Trade Finance.

Pre-shipment finance providers

Banks are often the first phone call for prospective borrowers with security requirements typically involving standard banking credit hurdles. Property security, long trading history with profits and strong balance sheet the usual standard.

Outside of banks, you will often come across invoice factoring companies offering a form of pre-shipment or trade financing facilities that are paired with factoring arrangement. Repayment terms can vary on these facilities and often involve the approve from a third-party insurer based on your companies credit and trading history.

Factoring providers are very effective at providing working capital once goods have made it to your end customer, though it may prove more difficult to source a provider that covers your overseas buyer receivables.

Outside of factors and Banks

Specialist trade and production funders only provide funding for businesses looking to raise 100% of the purchase or production costs related to export (and import) orders. They’re seeking to understand the entire supply chain, buyer strength, and profitability of the transaction presented often providing full transaction management and logistics to ensure on-time delivery of goods to customers.

These specialist trade financiers also focus on the takeout or payback of funds and work in tandem with invoice factoring companies that see the benefit of helping clients increase orders and growth while maintaining close working relationships with their clients.

Need help fulfilling large sales orders? Ask Stak.

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We regularly share our thoughts on trade finance, lending, procurement, logistics, and international trading.

Stak provides working capital to clients that sell to some of the largest buyers in Australia & overseas.

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How purchase order financing works in tandem with invoice factoring providers

How purchase order financing works in tandem with invoice factoring providers