Trade finance facilities such as a letter of credit combined with a factoring facility can provide an ideal solution for importers. This combination can allow importers who take confirmed orders from reputable customers to pay their supplier. By funding the full trade cycle it allows them to raise finance from order right through to when their customer pays.

How does this work?

• The importer receives a confirmed order
• They place that order with their supplier
• A letter of credit is raised in favour of the supplier
• Good are shipped and when received the supplier receives payment from the LC
• Goods are delivered and an invoice is raised
• The factoring facility repays the LC
• When the customer pays the factoring facility is repaid

Requirements:

• A confirmed order
• from a credit worthy customer
• usually a 20% profit margin is required

Security

Some banks require tangible security in the form of cash cover or a charge on property. However, within the market there are lenders who will happily raise an LC on the back of a confirm order.