Today, small to mid-sized enterprises (SMEs) are presented with a menu of options to choose from when seeking trade finance options. In the wake of open account trade financing, the rise of pre-export financing has become increasingly prevalent among companies seeking alternative cash injection options.
SMEs utilize innovative trade finance solutions generally to bridge the gap in their supply chain between full cycle transactions, from production to payout. For example, in the event that a small scale manufacturer or export company is exporting goods or services to a customer, but lacks enough working capital to roll out operations, pre-shipment finance would likely be of interest to that company.
A typical pre-shipment finance arrangement involves two parties: the exporter or seller and the finance provider. The customer typically is not a party to the financial partnership. The finance provider provides the buyer with the pre-shipment finance they need to bridge the funding gap in buyer’s supply chain, and a timeline for repayment is set.
Pre-export finance is a trade finance solution that is available to companies looking to fulfill orders and transactions on schedule while avoiding going into debt or abiding by traditional trade finance solutions that involve both collateral and risk. Pre-shipment finance is essentially a credit extension to help companies mend the void in their supply chain, prolonging timelines in which the company must account for the expedited financial advance.
As fin-tech increasingly disrupts the traditional finance model, digital trade finance continues to grow in popularity among SMEs. Pre-shipment export finance has alleviated many up and coming businesses from their growing pains by extending a new kind of payment platform that allows organizations to successfully obtain the funds to fulfill orders while valuing customer relationships and ultimately have a sense of reassurance or relief in their day to day operations.
What we have seen:
A company that exports refrigeration equipment to a multitude of companies in diverse markets ranging from restaurants to supermarkets has a large clientele. Due to order consistency and uniformity, it is difficult to complete all orders based solely on the company’s cash on hand. As a result, the refrigeration equipment distributor utilizes pre-shipment export finance. The distributor receives funds in advance to fulfill orders, manage inventory, and satiate other operational needs while managing to scale the business in accordance.