Simply put, trade finance enables a business to acquire products that it needs to conduct operations. Typically in a wholesale/distribution business, this would be stock, and in a manufacturing concern this would be raw materials. For example, an importer and distributor of brushware would use a trade finance facility to import mops and brooms.
Why consider a trade finance facility?
There are many reasons, some obvious, some less so. In no particular order of importance:
- South African banks, which are in most cases the primary source of working capital finance for small and medium sized business, adopt a conservative approach to granting credit, which is mostly security based. This is not a criticism of the banking industry’s approach, but it can and does provide a growth constraint.
- A trade finance facility extended by a company which specialises in this area does not interfere with existing bank facilities.
- The facility can be used for both local and international transactions. Where a business sources most of its purchases locally, typically on a 30 / 60 day net payment term, a trade finance facility can be used to pay the supplier in cash to obtain a discount and the credit term can be extended by the trade financier.
- In the case of international transactions, Anglo Cape Confirming has many years experience of opening letters of credit where these are required. A growing tend is for overseas suppliers to demand the whole or a portion of the purchase price to be paid in advance and again this is an aspect that we are familiar with and equipped to undertake.