How trade finance is changing in 2022

By Richard Holdcroft

The international trade system has undergone a massive transformation in recent years, with the rise of e-commerce and the increasing uptake of digital technologies. These changes are revolutionising trade finance, making it much easier for small and medium enterprises (SMEs) to think big and join the global economy.

Exporters prefer to be paid before shipping goods, while importers naturally want to ensure that their goods will be received. Trade finance is an umbrella term for a range of specialised financial products designed to solve both parties’ problems by reducing their risk and meeting their cash flow needs during such transactions. These products can include Invoice Finance, Payment Against Documents, Letters of Credit, and other funding tools.

However trade finance is not exclusively for importers and exporters. It can be a short to mid-term funding solution for buyers and suppliers looking to trade goods, increase stock levels, extend payment terms and capitalise on opportunities both at home and abroad.

For buyers, a large purchase can make a significant dent in working capital. Trade finance allows them to fund a transaction without suffering cash flow gaps while waiting for delivery.

For suppliers, extended payment terms can also result in a shortage of working capital. Trade finance enables them to release the capital tied up in the manufacturing and shipment of goods.

No matter the size of your business, exporting can be a great way to grow revenue and increase profitability, and can also help to spread your risk and reduce your dependence on local markets. And importing can open up new domestic markets, allow you to offer your customers new products or services, or to reduce costs of existing lines.

However, SMEs looking for access to trade finance and help with international transactions have in the past found themselves frustrated at every turn. They have been locked out of many products and services offered by traditional institutions such as the banks, which have overlooked ‘riskier’ smaller businesses in favour of larger corporations, and today in most OECD countries only 10 to 25% of SMEs that are involved in manufacturing also export, compared to more than 90% for their larger counterparts.

Thankfully, a number of innovative non-bank lenders are now competing in the trade finance space specifically to service SMEs, providing user-friendly online platforms and tools that take the pain out of large and complex transactions, making it easier than ever for small businesses to take advantage of new business opportunities and maximise potential savings such as bulk buying and early payment discounts.

Admin and paper-based processes place an extraordinary burden on smaller businesses, which don’t have the big back offices of large corporations, so the increasing digitisation of international trade and trade finance opens new doors for SMEs, who can now afford to access the same trade finance products as those available to large corporations.

Some non-bank lenders do much more than simply provide finance, they go out of their way to smooth the path for SMEs wishing to engage in international trade. They may have their own offices based in foreign trade hubs such as China, and teams of in-house trade experts who can help their clients negotiate to secure better trade terms, ensure the quality of goods from foreign suppliers, and understand multinational customs, logistics and legal requirements.

Miscommunication is one of the main reasons for disputes between buyers and suppliers, especially when national borders and language barriers are involved, and a good trade finance provider can help to avoid misunderstandings by ensuring accurate and timely information is available to both parties, ensuring that they can conclude their transactions with confidence.

As global trade recovers in the wake of disruptions caused by the COVID-19 pandemic, SMEs are now in a far better position to take their place on the world stage than they were just a few years ago thanks to these advances in trade finance.

Contact us to learn more about the range of trade finance products available to your business and how you can access them.

Feel free to contact us for anything that relates to your business finances so we can help with your success.

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