While politicians might still be issuing opinions about the pros and cons of globalisation, businesses have long come to terms with the reality of competing in global markets. In order to sustain steady growth in the long term, businesses need access to international suppliers and markets.
Unfortunately, many businesses face a great deal of difficulty in making that leap. Purchasing internationally traditionally requires a significant investment up front, which many businesses can’t afford without the help of investors. In order to clear this financial hurdle, businesses need access to financing. This is a problem, because a lot of financing options are not only difficult to access, but also inadequate in that they don’t cover the cost of the initial deposit required to make a purchase.
Fifo Capital’s trade finance facility, however, comprehensively takes on this issue. With this type of financing, businesses can ship from abroad without being forced to take out traditional loans, and without dipping into their own working capital at all.
International access is critical for growth
In order to scale up beyond a certain size, businesses typically need to take advantage of the opportunities offered by foreign suppliers and markets. By setting up international supply lines, businesses can often reduce costs significantly, which, in turn, allows them to more competitively price goods shipped to foreign markets. Setting up those supply lines, however, is not a simple task.
Entering global markets
While particular luxury brands might be able to take liberties with their pricing, most businesses rely on competitive pricing in order to sell products. This holds true internationally and plays an important role in how successfully a business can enter a foreign market. The farther a business needs to ship its products, however, the more it’ll be forced to increase those prices. This means that a business that wants to ship and sell its products in faraway markets needs to find ways to reduce its costs, if it wants to be able to compete with local competitors in those markets.
In many industries, competing at a large-scale inevitably means outsourcing. A foreign supplier that can take advantage of low labour costs can offer materials at prices that local businesses simply can’t compete with. By building relationships with these suppliers, businesses can significantly reduce production costs without sacrificing product quality. Those suppliers, however, need to protect their own interests, and their payment terms will reflect this.
The problem with traditional trade finance
Trade finance traditionally allows businesses to safely purchase goods internationally while financing the cost for the buyer. However, businesses are almost always required to pay a significant deposit up-front. This is an issue for many businesses, since the facility is traditionally secured against the stock itself. That means the financial institution can’t actually issue the funds to the business in order to pay the supplier until that business already has the stock in hand.
As a result, while trade finance does help business to make international purchases, it still leaves businesses to come up with sizeable deposits before they can place any orders. Even for established international businesses, this can present a financial challenge. For growing businesses, who typically face a wide range of financial pressures, this constitutes a significant barrier to entry.
A better way to do trade finance
Fifo Capital’s trade finance facility is designed to ensure that any business, regardless of its size and prior international relationships, can operate overseas. Instead of securing financing against the purchased stock, businesses can secure their purchases in other ways, including invoices. This makes it possible to finance the entire purchase, including the initial deposit.
Extending payment terms
Using financing to make a purchase is well and good, but processing the purchased materials, or selling off purchased stock, takes time as well. In order to shorten, or even eliminate, the cash conversion cycle, Fifo Capital allows businesses to extend their payment terms by up to 90 days. Ideally, this is designed to allow businesses to purchase and ship materials, process them, and sell their products before the time comes to pay off those initial materials.
This type of trade financing effectively removes all the financial barriers a business might face with regard to using lower cost overseas suppliers. Because no initial investment is required on the part of the business, and because payment can be deferred for up to 125 days, almost any business can then take advantage of the same trade tools that allow very large international businesses to compete globally.