Most companies will need to borrow money to finance the growth of their business. Maintaining a positive cash flow is essential to successfully meeting the timing challenges every business faces during the growth cycle.
The three main challenges affecting cash flow are the time it takes to:
- Produce or purchase a product.
- Sell and deliver the product
- Collect the associated invoice.
It’s essential to ensure you have enough capital to manage each challenge during the various stages of growth.
Even the best and most profitable organizations have to deal with these timing issues and will likely have to borrow money to finance their business.
The ability to borrow, and the terms under which a company can borrow, are largely determined by where the business stands as judged by the traditional five c’s of credit: character, capacity, capital, collateral, and conditions.
The more profitable a company, the more options it has for financing and the cheaper that financing will be. The irony is that the less your company needs money the more lenders you will find, and the more you need money the fewer options you will have.
For those companies that are having trouble finding financing, trade finance is a viable solution.
But can my company afford trade finance?
Remember that in business profits equal success; the more the better.
It’s your profit margin that determines whether your company can afford and effectively use factoring and trade finance options.
First, you must know how much profit your company is making. Do you have accurate and timely financial statements? It’s surprising how many entrepreneurial companies fail to meet this requirement! Try running at full speed with your eyes closed and see how far you get. You’ll have the same success running your company without good financial information.
You can start by simply tracking cash in and cash out. Many good accounting programs are available at affordable prices for those with some accounting knowledge. Accounting help is available at many different service levels from a part-time bookkeeper to a full-service accounting firm for those in need of assistance. Keep in mind that lenders love good financial information.
The better your financial information, the more likely you will find affordable money.
Timely information is extremely important. If you only find out today what happened 90 days ago, it may be too late to make adjustments that are needed for success. I have seen many companies fail because they simply didn’t know what was happening. Either you stay on top of your financials, or you end up broke, losing money on each sale.
Many companies use trade finance (also known as purchase order funding) to get the capital they need to produce the products necessary to fulfill purchase orders from credit worthy customers.
Savvy clients can get advanced up to 65% of the value of their purchase order, which often allows them to finance 100% of their production cost.
This trade finance is then paid for when the product that’s being purchased or financed is sold to your customer and the associated invoice is factored. The factoring advance needs to be sufficient to repay the money borrowed, plus the associated fees with some margin for safety. You can look at what’s paid for the financing, your resulting profit, and determine if enough is made to make it worthwhile for your business.
Premier Trade has many years of experience working with companies seeking trade finance. We are able to put this expertise to work helping you find financing for your growth. We can help you understand trade finance and prepare an appropriate package for presentation to a funding source. And we will help you find that source.