The last 12 months have been a fight for survival for many businesses. Unfortunately, it’s likely that this fight will continue well beyond the relaxation of lockdown rules in the UK. In the world of business, cash has been king for a long time, but it’s likely to be more important than ever before in the near future.
UK Government support has been provided to businesses and has been essential to enable them to continue to trade. It’s important to remember that the support offered, including bounce back loans, CBILS, deferment of VAT, rent and rates, will need to be repaid. This is going to put more pressure on the cash flow of businesses involved.
Forward planning is going to be ever more key going forward, especially cash flow planning. The SMEs who are putting their revised numbers together for the next 6 to 12 months will be starting to identify their funding requirements and where those dips are – and how regularly they occur.
There will be businesses who will see their cash flow dip around the need to pay their supplier for goods. In some cases, these same businesses will see previously available credit lines no longer be available to them or be drastically reduced – especially if they deal with overseas suppliers and manufacturers.
In cases where the cash flow hole is created by the need to pay a supplier for goods, this is a scenario where Trade Finance can be the most suitable and powerful solution.
This is achieved by the Trade Finance provider stepping in to the pay the supplier, allowing the goods to be paid for in full, the goods to be shipped and for customer orders to be completed. The proceeds of which will then, in turn, repay the Trade Finance liability – making the whole thing a self-liquidating short terms transactional requirement. This process is unlike a loan which will have a formal repayment profile over an agreed period.
So, as SME businesses start to plan and enter a period of optimism after a difficult time, it is those who can plan their future cash requirements and source the right type of funding solution with the right funding partner who may find they manage the choppy waters ahead better than others.
For more information on how WeDo Trade Finance might be able to assist please get in touch:
Trade Finance can seem like a complicated or overwhelming concept. With that in mind, we wanted to give a typical example scenario of where it could directly support your business.
Imagine that a business is purchasing goods regularly from China on ‘Cash Against Document’ terms to the value of £100k / $137k. In turn, that business is selling these goods to its customer at a price, including VAT, of £150k monthly.
What this means is that the business is paying for their goods, whilst said goods are in transit, using its cash generated from historic sales.
The business owner is keen to increase its sales, and in turn profitability, and are talking to their customer around an increase in quantities which will result in an increase in sales. These discussions go well – to the extent that the customer places an order of £450k inclusive of VAT – an increase of £300k against their standard orders.
The business discusses this with its supplier and, whilst the supplier is able to provide the quantities in the required timescales, the payment terms of ‘Cash Against Documents’ remains the same. This means that the business will need to pay their supplier the amount of £300k / $411k which at this time they are unable to do.
The business is now in a ‘Catch 22’ situation: wanting to grow the business, a customer that has placed an order at a much higher level, and a supplier who can provide the goods – but it has insufficient cash in which to proceed.
This is where Trade Finance can help the business to unlock its cash flow. With a properly structured Trade Finance Facility, the Trade Finance provider will be able to pay the supplier the purchase price of £300k / $411k on the existing terms set out by the supplier. This means that whilst the goods are in transit to the UK, the Trade Finance provider will not require repayment until the goods have been sold, if an Invoice Finance facility has been implemented, or when the customer comes to pay.
This results in a scenario where the supplier has been paid, the customer has received their goods in line with the expectations and the business is in a great position to continue to trade at increased levels.
Why get stuck in a rut and lose out on business? Don’t have sleepless nights, get in touch with WeDo Trade Finance and we see how we can help