When a business owner needs to purchase items for their company but doesn’t have the cash on hand, they may turn to trade finance to help them out. Trade finance is a form of financing that can be used to fund the purchase of goods and services from abroad. There are a few different types of trade finance, but the most common is Letter of Credit (LCs).

Trade Finance and LCs

An LC is an official form from a financial institution promising payment to the seller for the goods they send to the buyer. The buyer gets the goods they need, and the seller is guaranteed payment for those goods. This may be one helpful option for businesses who want to expand their operations but don’t have the cash on hand to make purchases.

There are a few reasons why business owners might choose to use trade finance instead of traditional financing options like loans or lines of credit. One reason is that trade finance can be used for international transactions, which can be helpful for businesses that want to do business with companies in other countries.

Another reason is that trade finance usually has shorter terms than traditional loans, which can be helpful for businesses that need quick access to capital. And finally, trade finance typically has lower interest rates than traditional loans, making it an appealing option for businesses who are looking to save money.

Forfaiting

Forfaiting is an important trade finance tool that business owners use to improve the flow of cash as well as grow their businesses. It is a form of invoice discounting, and it enables a business to offload their invoices (basically, accounts receivable) to a forfeiture so that they may get cash upfront. It often ends up being a great way for businesses to get the working capital required to expand.

There are several benefits of forfeiting. First, it can help businesses improve their cash flow. This is because they can get cash upfront for their invoices, which can help them pay bills and cover other expenses. Second, it can help businesses expand their business by giving them access to the capital they wouldn’t otherwise have. And third, it can help businesses reduce their exposure to credit risk.

So if you’re a business owner who needs to make a purchase but doesn’t have the cash on hand, trade finance may be a good option for you. It can help you get the items desired speedily, and at a lower cost than traditional financing options. Green Apple Funding can help you better understand this financial vehicle and others; reach out to us on our website at your earliest convenience.