If you have a trading business, especially one that works with overseas entities, then you’re well aware of every single market fluctuation that affects everything you do. International trading can be time-consuming and frankly, daunting, especially if you’re a small business owner, to begin with. Also, when you throw international suppliers and late payments into the mix, then you got yourself into a situation that requires immediate financial injection. So to make things easier for you, here are some strategies that will improve the financing of your worldwide trading business.
As its name states, invoice finance happens when you receive an advance for the majority of an invoice’s value as soon as it’s raised. So, when your customer pays, the lender will send you a reminder, while still retaining their own fees. Also, there are various products in this field, such as discounting and factoring, that are designed for all invoices. However, if you want to finance an occasional invoice, then selective invoice finance can help you there. Generally, invoice finance is a great way to bridge the second cashflow gap that happens while you’re waiting for your customers to pay their share. This type of gap happens regardless of whether you’re doing business with domestic or international clients.
This might not be the obvious step, but it can be very useful, especially long-term. If you’re new to the trading business, then you have to network and create strategic partnerships, especially on a local level. In case you’re planning to set up offices abroad, then having local partners there will help you immensely. Expanding your business elsewhere is a lot of work and planning, and in that case, a network of reliable and trustworthy contacts there can make the transition so much easier. Reliable local partners can guide you through the initial stages and help you deal with the unique challenges that come with opening a business in a totally different location.
Before we delve further, let’s explain trade finance a bit more. It is a type of work capital finance, the same family as supply chain finance and invoice finance. Its main goal is to get you much-needed cash to buy stock or inventory from suppliers. Usually, it works on a confirmed order basis. Meaning, if you have a confirmed order from a customer, then trade finance methods will help you buy inventory or stocks necessary for fulfilling that order. So it also means that the goods can be shipped as soon as that’s possible. Since its basis is purchase orders, trade finance is often called “purchase order finance”. So if you have domestic or foreign clients, trade finance can help, whether you’re exporting or importing.
Once you establish firm relationships with local partners, then it’s time to look out for local resources that can help you with your trading business. If you have international business ambitions, then local resources can help you on a more micro level, especially for small- and mid-sized businesses. Local resources can not only offer financial help, but also valuable guidance that may surely get your international operations to a whole new level. Hence, be sure to use all the available tips and tools aimed at your line of business. Some governments might also offer them for free, especially to promising businesses that are about to enter new markets.
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Sure, getting a loan might not be everyone’s favourite way to finance business endeavours, but in reality, it is a step that many have to take in order to succeed, especially if they lack sufficient initial capital. So visiting the bank that works for you best is a logical first step to making your trading business take off. Bank financing can help you increase inventory as a buyer, or rebuild capital reserves after you’ve completed a large shipment. However, it is important to be extremely careful with bank finances, since there are a few downsides to it. First, most banks need a personal guarantee or your assets as collateral to ensure that you’ll pay everything back. Bank loans show up in balance sheets as debt, so remember to take that into account as well.
There are all viable strategies that will help you finance your international trading business. Remember that a company’s growth takes time and investments, so any initial financial backing can help you there. As long as you’re well-informed and careful you’ll be able to find resources for financing your trading business.
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