Trade finance, explained

International trade stretches cash in a way few other activities do. An importer might pay a supplier before goods leave the factory, wait weeks for them to cross the ocean and clear customs, then wait again for customers to buy and pay. Trade finance is designed around that timeline. This entry explains the main tools and how they fit together.

What problem does trade finance solve?

Consider the cash cycle of an importer:

1. Deposit to the overseas supplier when the order is placed.
2. Balance payment when goods ship.
3. Freight, insurance, customs duty and GST on arrival.
4. Weeks or months of selling the stock.
5. Customer payment, possibly on 30 to 60-day terms.

The business may be out of pocket for months on every order. Trade finance pays the supplier (and sometimes the landing costs) and gives the business a defined period to sell the goods before repaying. As one shipment is repaid, the facility is available for the next.

What are the main trade finance tools?

Tool	How it works	Who it suits
Supplier payment facility	Financier pays your supplier; you repay within an agreed period	Regular importers
Letter of credit	Bank promises to pay the supplier once shipping documents are presented	New or larger supplier relationships
Documentary collection	Banks exchange documents for payment or acceptance, with less protection than a letter of credit	Established relationships
Purchase order finance	Funds supplier costs to fulfil a confirmed customer order	Businesses with a large order beyond their working capital
Export working capital	Funds production until overseas buyers pay	Exporters
Inventory finance	Borrowing secured by stock on hand	Wholesalers and distributors

Once goods are sold on credit, invoice finance can take over from trade finance, so the whole cycle — from supplier payment to customer receipt — is covered.

How do trade financiers assess an application?

• Your trading history and margins. Can the business sell the goods at a profit and repay on time?
• Supplier track record. Established suppliers with reliable quality and shipping reduce risk.
• The goods. Their saleability and whether they could be sold by the financier if needed.
• Your customers. For purchase order finance, the creditworthiness of the buyer matters most.
• Security. Usually a general security agreement registered on the PPSR, plus director guarantees; property can support larger limits.

If you’re planning a first big import or a step up in order size, you can ask a specialist which structure suits it.

What does government support for exporters look like?

Export Finance Australia is the Australian Government’s export credit agency. business.gov.au describes its loans as helping small and medium businesses finance export contracts or purchase orders when traditional lenders can’t assist, with eligibility criteria such as annual turnover above $250,000, at least two years of operation and an Australian company number. It’s worth checking current criteria directly, as programs change.

What are the risks to plan for?

• Currency movements. A shift in exchange rates between order and payment can erode margin. Many importers use a forward contract through their bank.
• Shipping delays. A late container can push repayment beyond the facility’s term. Ask how extensions work.
• Quality problems. Letters of credit pay against documents, not inspection. Build inspection into the process for new suppliers.
• Over-ordering. Easy access to supplier payments can tempt a business to carry more stock than it can sell.

How does trade finance fit with other facilities?

Trade finance rarely works alone. A typical importer’s funding stack might look like this:

1. Trade facility — pays overseas suppliers at shipment.
2. Invoice finance — advances against sales invoices once goods are sold to business customers.
3. Line of credit — covers freight, duty and day-to-day costs.

Each facility is repaid by the next stage of the cycle, so the business’s own cash isn’t tied up for months at a time. Lenders like to see the whole picture, including how each shipment is repaid, so it’s worth mapping your cycle before you apply.

Terms used in this entry

• Letter of credit — a bank’s undertaking to pay a supplier once agreed documents are presented. Glossary →
• Bill of lading — the shipping document that evidences goods have been loaded for transport. Glossary →
• Purchase order finance — funding to pay suppliers against a confirmed customer order. Glossary →
• Inventory finance — borrowing secured by, or used to buy, stock. Glossary →

Every term is defined in the business finance glossary, with links back to the full entries.

Worked example (illustrative)

Illustrative only. A homewares importer orders stock from an overseas manufacturer each autumn for the Christmas season. The supplier wants the balance on shipment, and the importer’s own customers — independent retailers — pay 30 days after delivery.

A supplier payment facility pays the manufacturer at shipment and gives the importer a set period to repay. As goods are delivered to retailers and invoiced, an invoice finance facility advances cash against those invoices, which clears the trade finance drawing. The importer’s own cash is freed for marketing and freight rather than sitting in stock.

Importing, exporting or taking on a big order?

Trade finance can let you buy in bigger volumes and accept larger orders without draining working capital. It takes about a minute to tell us what you need, and there’s no credit check when you first enquire. Your details aren’t sprayed across a list of financiers; a real person looks at your trade cycle and calls you. Please describe your supplier terms, order sizes and customer payment times accurately so we can recommend the right structure first time.

See if you qualify →