The week completed 16th October 2015

TRADE FINANCE

 

Trade Finance
Trade Finance

We have recently concluded a couple of trade finance facilities, enabling UK based businesses to buy goods from overseas and sell here.

In the first example the UK business sourced make-up from a supplier in the far east. From some samples it achieved firm orders from a number of UK based retailers, with an aggregate sale value in the region of £225,000. The purchase price from the far eastern supplier was the sterling equivalent of just over £120,000.

The initial problem was that the far eastern supplier would not offer any credit to the UK business and they had insufficient company or personal resources to finance themselves.

Our involvement put the UK business in touch with a specialist trade financier. They had all sorts of concerns and covered every eventuality but without their involvement there would have been no transaction.

The trade financier paid for the goods and with other costs put out just over £130,000. With cleared funds in their bank the far eastern supplier released the product which then spent 24 days in transit to the UK.

On arrival in the UK the product was split, re-packaged and delivered to the buying retailers in accordance with their orders.

Trade Finance, as the example above shows, is a product that can facilitate a transaction that may not otherwise happen. But it is absolutely crucial to examine the costs.

In the example the financier has advanced £130,000 and their charge was 2.86% per month. By the time the goods arrived in the UK, had been dealt with logistically here and then paid for nearly 4 months had elapsed so charges came to just under £15,000

Add in other charges, insurances, freight, duty and its easy to see how the selling price of £225,000 is eroded. With this example £225,000 is reduced to £80,000 prior to other charges.

Consequently, with trade finance the crucial aspect which will determine any involvement from a financier is the margin. Commodoties tend to have very small margins so trade finance rarely works but where a product is sourced and a buyer is found with a significant margin then trade finance is invaluable.

We have considerable experience in trade finance and contacts capable of funding the trickiest of transactions so if you have an opportunity, feel free to get in touch.

 

As usual, at least over the last few weeks, the blog finishes with our Guide Dogs in waiting, the puppies are 5 weeks old and we are advised by Guide Dogs to subject them to different noises, latterly they have been listening to Test Match Special commentary from the Middle East and one of the most boring test matches in history. Consequently they have been sleeping more than usual.

Sleeping puppies
Sleeping puppies