Glossary of Business Credit Terms

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Import Financing

What Is Import Financing?

Import financing is the capital availed to businesses to buy goods for the purpose of being imported into the country. Truth be told, import transactions can be a huge burden on the cash flow of a company. Complications and delays often arise and this could mean that money would be invested long before the goods arrive. In addition to the huge cash flow burden, import tariffs and freight rates can add uncertainty and significant costs to the transaction.


How Does Import Financing Work?

When it comes to import financing, the import finance provider function as the intermediary between the manufacturer, importer, and customer thus financing the import deal. In this way, overseas suppliers are paid quickly as such; they take new orders from the importer. Over time, the importer may be able to negotiate discounts for early payment. With import financing in place, the importer is in a position to accept orders, fulfill orders and accept new orders.


The Importance of Import Financing

In the last decade, there has been a significant rise in international trade thus contributing to increase demand for trade finance. Clearly, import has several benefits such as gaining a competitive edge, high-quality goods, and lower prices. However, when it comes to importing from overseas, there are several challenges associated with conducting business with overseas companies such as overtrading and buying large volumes of goods. All of these challenges can make a business perform poorly, at worst, fail.


One of the challenges that importers face is the issue of trust; there is lack of trust in the part of overseas suppliers, as such, they demand for upfront payment even before they ship the goods out to the US. No doubt, this will put a strain on the cash flow of the importer. Long payment terms can starve businesses of working capital and this is where import financing comes in.

Import financing can help to reduce import pressure by providing additional capital thus ensuring that suppliers are paid as at when due and in turn free up working capital for other needs of the business.

Types of Import Financing

There are different types of import finances for businesses; they include import loans, inventory financing, invoice factoring, purchase order financing, asset-backed facilities, bank guarantees amongst others. These import finance types raise capital for importers as they source for raw materials from international suppliers.

Import factoring which is the same category as invoice factoring is suitable for established businesses that have years of experience in import, good suppliers and purchase orders from loyal customers. Import factoring works when there is a confirmed import contract with a creditworthy customer. Import financing provides about 100% of the order value that is 100% of the order's value is advanced for imports. This working import finance is designed to ease overseas trade by supporting the import from the start to the finish that is from the initial order to customer payment. The import finance provider function as the intermediary between the manufacturer, importer, and customer thus financing the import deal. In this way, overseas suppliers are paid quickly as such; they take new orders from the importer. Over time, the importer may be able to negotiate discounts for early payment. With import financing in place, the importer is in a position to accept orders, fulfill orders and accept new orders.

Inventory financing is another import financing that is applicable to small businesses. Though inventory financing is expensive, it's an effective way to finance import operations. For inventory financing, business owners are required to use their current inventory to apply for a loan to allow them purchase goods requested by customers. Inventory financing increases the inventory of business without impacting cash flow for as long as the business services the debt.

Purchase order financing is an import financing option for businesses whose suppliers demand payment before shipping goods but do not have the required finance to meet their demands. Your purchase order financing company will pay the supplier 100% of the money needed to ship the goods directly to your intending buyers. Once your buyers receive their products and make payments, you will repay your purchase order financing company from the proceeds.

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