Australian businesses have traditionally been strong importers and exporters. As a nation, we exported $460.6 billion and imported $368.2 billion worth of goods and services in 2023.
For any business that trades internationally, cash flow can be a major stumbling block to success, particularly if they want to grow to service new markets. In fact, a lack of working capital can make even the strongest business stagnate. Do any of the following sound familiar?
- You understand you need extra funding to grow, but you’ve exhausted all of the traditional funding options.
- You’re confident your business will continue to flourish based on past performance, but you’re not sure how to best fund new opportunities.
- You’ve borrowed all you can from your bank based on your personal or business assets, and you’re not sure where to turn next.
That’s where a trade finance facility can help. But what is trade finance? This form of funding works as a revolving business line of credit that gives you the working capital you need. It helps to plug financial gaps by immediately funding a transaction so your supply chain can continue uninterrupted. Trade finance can provide funding for new opportunities or help to shore up businesses that are feeling cash flow strain on supplier payments.
In this article, we dive into what trade finance is, the advantages of this type of facility, how you can work out if it’s right for your business and more.
The lowdown on trade finance
Trade finance is a well-established business funding solution. Globally, the trade finance market was valued at more than $15 trillion in 2024. In simple terms, trade finance is a business ‘line of credit’ facility that’s ideal if you buy from other businesses, whether they’re overseas or based in Australia. Trade finance is used in every industry, including retail, manufacturing, food and beverage, pharmaceuticals, healthcare, eCommerce and more.
Let’s face it – if you’re importing or even buying locally, you don’t want all your available cash tied up in paying for goods that can take weeks to arrive. And then you can’t even begin to make your money back until you have the items in stock and start selling them.
Trade finance funding works by bridging the gap between paying for your goods and recouping your money when you sell them to customers. This kind of financing gives your business quick access to funds by introducing a trusted financial partner, such as Octet, into your supply chain.
The high-level trade finance process is simple:
- Your business purchases goods from your suppliers, either in Australia or overseas.
- Your financier extends you a tailored line of credit to pay those suppliers immediately.
- You then repay your financier with extended credit terms.
Without finance, the longer it takes between ordering/receiving the goods and making payment, the longer your working capital is tied up in the transaction. Trade finance helps bridge that general gap. As a buyer, it lets you pay your suppliers immediately and then repay the credit facility over time. As a seller, it allows you to get paid as soon as possible to keep your own cash flow healthy.
Advantages of using a trade finance facility
Businesses use trade finance to fund their business growth and to plug cash flow gaps. But what are the real benefits of using a trade finance facility over another form of funding? Here are our top four reasons.
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Control your working capital
Choosing a business line of credit like trade finance over a traditional loan means you don’t have to offer your business or personal assets as collateral.
Traditional financial institutions usually demand asset security before they lend you money. So, if you’re short on personal/director’s assets, have maxed out your borrowing limit or don’t want to use your assets as collateral to begin with, your business can stagnate.
Trade financiers often lend based on the strength of your business’ balance sheet and the risk of the supply chain transactions, not on your personal assets. They examine your overall business and transaction values to determine your credit limit. That makes it easier to grow and scale your business as your sales increase. As your transaction values and profitability grow, so can your funding limit.
This benefit is significant if your business, industry or market is experiencing supply chain issues. Disruptions to your supply chain can widen your funding gap. With Octet’s Trade Finance facility, you can close this gap and provide your business with a cash flow advantage by extending your payables by up to 120 days.
With our intelligent solution, we pay 100% of supplier invoice values, including any upfront deposit requirement. When combined with interest-free terms of up to 60 days, you’ve got a flexible and powerful financing tool for your business.
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Flexibility with global transactions
International trade is complex at the best of times, so anything that makes the process smoother has to be good for your business. Using a trade finance platform makes it easy to pay global suppliers using other currencies.
Currency fluctuations are an inherent risk in any international transaction. If the rate between the Australian dollar and your supplier’s currency changes dramatically overnight, you could suddenly owe a lot more than you’d budgeted. Trade finance can safeguard against these currency fluctuations by setting the exchange rate for the transaction upfront.
Our Supply Chain Platform gives you single-click payment across 72 countries in your choice of up to 15 currencies, which greatly reduces costly bank FX conversion fees and margins. Or you can bring your own third-party forward exchange contract to the transaction via our supply chain platform too. In just one click, you can authorise the payment, knowing that the FX is handled quickly and easily in a single, hassle-free step.
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Early repayment discounts
Using a trade finance facility makes your cash available shortly after you receive your supplier’s invoice. This enables you to take advantage of any early settlement discounts your suppliers may offer (or you’re able to negotiate). This can ultimately save you money on your goods and services and allow you to repay your financier over a longer timeframe.
With the Octet Trade Finance solution, you can pay both international and domestic suppliers. And for those domestic suppliers, this can be related to invoices for goods or services. This flexibility allows you to use the funding and seek early payment discounts for a broader scope of supplier types and transactions than other funding options may allow.
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Reduce global trading risk
Trading internationally always comes with an element of risk, and there are often few, if any, safeguards. If you’re an importer, there’s no guarantee that your goods will actually arrive. As an exporter, you risk not being paid on time, or at all, once you’ve sent the shipment.
A smart solution like our Trade Finance facility makes it easier and safer to trade, regardless of which side of the transaction you’re on. That’s because both the buyer and supplier are registered and linked to one another on the Octet Supply Chain Platform. Both parties to a transaction must sign up for the facility and be verified before it can proceed. We verify both parties to make sure they’re legitimate, which helps to significantly reduce these global trading risks.
The platform’s embedded claim and authorisation process also enables seamless communication between both parties. This ensures transparency and nullifies any payment dispute risk. It’s a win-win.
Is trade finance right for you?
As with any financial decision, it’s essential to do your homework and make sure both the financier and product are suitable for your business before applying for a trade finance facility. It’s important to ensure your finance partner has the reputation and experience to handle this type of finance securely.
The top four factors to consider when you’re researching trade finance solutions are:
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Eligibility
Not all businesses are eligible for trade finance funding. A financier will base eligibility on factors such as size, industry and the business’ specific requirements. For example, our Trade Finance solution is open to profitable Australian businesses with an annual turnover of at least $3 million.
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Costs
As with any financing solution, there’s a cost to using trade finance. That means you need to understand your profit margins and expenses so you can build the finance fees into your supply chain.
The cost of a trade finance product varies depending on the length of time you use it and the type of facility. But once factored into your budget, the facility fees can become a normal business cost.
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Product suitability
Most financiers offer a range of products, but not all will suit your business. Do your research and seek advice on which product is best for you in your circumstances.
In addition to our Trade Finance product, we also offer Debtor Finance, Supply Chain Accelerate and OctetPay. You might find that a combination of these products may be the best fit for your business. In fact, by combining Debtor Finance and Trade Finance facilities on our Supply Chain Platform, we can give your business an integrated funding package. Incorporating both facilities gives you a back-to-back financing solution featuring:
- a business line of credit to pay suppliers, with extended repayment terms (Trade Finance)
- an instantly drawable funding source leveraged against your receivables (Debtor Finance).
This can simplify those periods of rapid growth, especially when you win new projects or contracts with initial expenditure requirements. With these solutions, you can leverage the increased sales revenue and mobilise that cash flow to close the funding gap.
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Clear obligations
Most financial products can appear complicated when you start out, but they should have clear terms that they require both parties to follow.
Make sure you understand any obligations that come with the funding facility. If you’re unsure of anything, get your financier to explain exactly what you need to do to fulfil your obligations for their product.
Octet’s Trade Finance: close the cash flow gap
Octet’s Trade Finance facility gives you the power to bridge the cash flow gap. To be eligible, your business will generally need to have:
- a turnover of at least $3 million
- been trading profitably for at least two of the past three financial reporting periods
- a positive balance sheet net worth
- up-to-date ATO payments
- current management and financial accounts.
The amount of funding you can access depends on your business. We’ll look at your most recent financials and management accounts to calculate a limit based on factors including:
- your equity
- your cash position
- how profitable your business is.
Advantages of our Trade Finance facility
- Close your working capital gap. We offer up to 120-day repayment terms and 60 days interest free, so you can pay your suppliers immediately and then repay us over time.
- Unsecured. Our non-bank trade finance can be completely unsecured, meaning that we don’t require your real estate or personal assets as security to offer you finance. Alternatively, we also offer secured Trade Finance options.
- Quick turnaround. You’ll get an answer to your finance application within days, not months. That’s much faster than traditional options.
- Flexibility. You can use our finance either as your main funding source or to supplement traditional financing. So, if you want to diversify or your bank isn’t servicing your needs sufficiently, you can use trade finance as top-up funding.
- Easy international trading. Our Trade Finance facility makes it easy to pay suppliers in more than 72 countries in a choice of 15 global currencies.
- Secure platform and trading. We verify all members in our system to give you confidence that your trading partners are legitimate. Our information systems use best-in-class firewalls, encryption, hardware and procedures to keep your data secure.
How does our Trade Finance facility work?
Our Trade Finance facility has a simple workflow.
- Submit your application. Apply online, and if you’re successful, we’ll approve you and give your business a facility limit.
- Invite a trading partner. Add your domestic and international suppliers to the Octet platform. You don’t have to add all your suppliers to the system — just the ones you want to use the facility to pay. We’ll then ask them to enter their details so we can verify them.
- Place your order. Add your order to the Platform. Our system will notify your supplier so they can accept the order. You can upload any documents needed for the transaction — such as the purchase order, invoice and bill of lading — through the Platform.
- Authorise payment. Once the transaction is complete, you authorise the order and choose which funding methods you want to use to pay. This might be our Trade Finance facility, a credit card or a bank facility — or you could split the payment across multiple methods.
It’s that simple and safe. Our closed-loop Platform ensures the upload of all necessary documents, such as the bill of lading, before the order can be approved. That means you can be assured the transaction is valid before you pay.
How Octet’s Trade Finance accelerates business cash flow
Our Trade Finance facility helps you smooth out the cash flow fluctuations in your business.
For example, let’s say you sell sunscreen. As a seasonal business, you’ll need to order a lot of stock as the warmer months approach. Having a Trade Finance facility in place helps reduce the cash flow pressure that will build at that time.
Of course, regardless of the climate, other businesses may be flourishing and need extra cash to take advantage of opportunities for growth. In these cases, Trade Finance funding can provide a cash flow injection to help deal with demand.
This was the case for online wine retailer Vinomofo. The business had organically funded its growth without any debt since it began in 2011. But in 2020, when consumers moved to buying online during the pandemic, Vinomofo saw its opportunity to grow. Cash flow was good, but it needed a finance partner to take advantage of the deals on offer. Octet’s flexible finance allowed it to seize new opportunities faster than its competitors, which led to impressive and sustainable business growth.
Go Vita has also harnessed Octet’s Trade Finance. The health and wellness retailer was opening new stores nationwide and taking on new suppliers but wanted to preserve cash flow. The Octet Trade Finance facility allows them to do just that, and as Go Vita continues to grow, so too does the facility.
Discover if trade finance is right for you
No matter whether you need help to ride out the storm or fund exciting growth opportunities, trade finance will help your business power through.
Find out more about our Trade Finance facility and if it’s right for your business, or talk to us to find the best solution for your business needs.
Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
