Small and Medium Enterprises (SMEs) play a vital role in driving economic growth and fostering innovation. Importing goods is often an integral part of their business operations, enabling them to access a wider range of products, achieve cost savings, and expand their customer base. However, SMEs may face challenges when it comes to financing their import activities effectively. In this article, we will explore some key strategies that SMEs can employ to enhance their import financing and maximize their potential for success.

  • Establish Strong Relationships with Financial Institutions:

Building strong relationships with financial institutions, such as banks or trade finance providers, is crucial for SMEs seeking import financing. These institutions offer a range of financing options tailored to the specific needs of businesses involved in international trade. By cultivating a reliable and trustworthy partnership, SMEs can gain access to competitive financing terms, including trade loans, letters of credit, or factoring services, which can help streamline their import processes.

  • Leverage Government Support Programs:

Many governments recognize the importance of SMEs in driving economic growth and provide support programs to facilitate their access to finance. SMEs should research and take advantage of these initiatives, such as government-backed loan guarantees or export credit insurance schemes. These programs can mitigate the risks associated with importing goods and enhance SMEs’ creditworthiness, enabling them to negotiate more favorable financing terms with financial institutions.

  • Optimize Cash Flow Management:

Efficient cash flow management is crucial for SMEs engaged in importing goods. Delayed payments from customers or extended payment terms from suppliers can strain working capital, making it challenging to finance imports. SMEs should adopt strategies to optimize cash flow, such as negotiating favorable payment terms with suppliers, implementing stringent credit control measures, and considering alternative financing options like supply chain financing. This approach helps to maintain a healthy cash flow position, ensuring timely payments to suppliers and facilitating sustainable import operations.

  • Utilize Trade Finance Instruments:

Trade finance instruments can significantly enhance import financing for SMEs. For instance, letters of credit provide a secure payment mechanism for both importers and exporters, mitigating risks associated with international transactions. SMEs can negotiate favorable terms with their suppliers by utilizing letters of credit, ensuring timely delivery of goods while reducing the need for upfront payment. Additionally, trade finance instruments like export factoring or forfaiting can enable SMEs to convert their receivables into immediate cash, providing working capital for importing activities.

  • Explore Alternative Financing Options:

In recent years, alternative financing options have emerged as viable alternatives to traditional bank financing. SMEs can consider platforms that offer supply chain financing, peer-to-peer lending, or invoice financing. These options provide quick access to funds, often with less stringent requirements compared to traditional banks. SMEs should carefully evaluate the terms and fees associated with these alternative financing options to determine the best fit for their import financing needs.

  • Enhance Risk Management Practices:

Managing risks associated with importing goods is crucial for SMEs. Fluctuating exchange rates, geopolitical uncertainties, and supplier-related risks can impact import costs and disrupt supply chains. SMEs should adopt comprehensive risk management practices, including diversifying suppliers, using forward contracts or currency hedging strategies to manage exchange rate risks, and staying updated on geopolitical developments. By mitigating risks effectively, SMEs can enhance their credibility and improve access to import financing.

Importing goods offers tremendous growth opportunities for SMEs, but effective import financing is essential for capitalizing on these prospects. By establishing strong relationships with financial institutions, leveraging government support programs, optimizing cash flow management, utilizing trade finance instruments, exploring alternative financing options, and enhancing risk management practices, SMEs can improve their import financing capabilities and unlock their growth potential. With careful planning the implementation of these strategies, SMEs can strengthen their competitiveness in the global market and realize their full potential in importing goods.

Furthermore, it is important for SMEs to stay updated on industry trends, market conditions, and changes in trade regulations. By continuously monitoring and adapting to the evolving landscape, SMEs can make informed decisions regarding their import financing strategies. This proactive approach allows them to seize new opportunities, mitigate risks, and stay ahead of the competition.

In conclusion, SMEs should view import financing as a strategic enabler for growth and expansion. By implementing the aforementioned strategies, SMEs can enhance their financial capabilities, establish robust supply chains, and seize new market opportunities. Import financing, when approached strategically, can become a catalyst for SMEs to thrive in the global marketplace and achieve sustainable success.

Remember, each SME is unique, and it is crucial for businesses to evaluate their specific needs and tailor these strategies to their circumstances. With the right approach and a focus on building strong partnerships, managing risks, and optimizing financial resources, SMEs can navigate the challenges of import financing and unlock their full potential on the international stage.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

Small and medium-sized enterprises (SMEs) play a vital role in driving economic growth and job creation. However, accessing the necessary capital to expand their businesses can be a significant challenge. Trade finance products offer a range of solutions specifically designed to address the unique needs of SMEs. In this article, we will explore how trade finance products can help SMEs grow and thrive in today’s competitive marketplace.

Understanding Trade Finance Products:

Trade finance products encompass a variety of financial instruments and services that facilitate international and domestic trade transactions. These products are designed to mitigate risks, improve cash flow, and provide financing options tailored to the specific requirements of SMEs engaged in import/export activities. Common trade finance products include letters of credit, trade credit insurance, export financing, supply chain finance, and factoring.

Benefits of Trade Finance Products for SMEs:

 

  • Access to Working Capital: One of the most significant challenges SMEs face is securing adequate working capital to support their day-to-day operations. Trade finance products, such as invoice financing or supply chain finance, provide SMEs with the necessary funds to bridge the gap between product delivery and customer payment. This enables SMEs to maintain consistent cash flow, fulfill orders, and seize growth opportunities.
  • Risk Mitigation: International trade can expose SMEs to various risks, including non-payment, delivery delays, or political instability. Trade finance products like letters of credit and trade credit insurance help mitigate these risks by providing assurance and protection. Letters of credit guarantee payment to suppliers upon fulfillment of specified terms, while trade credit insurance safeguards SMEs against non-payment or insolvency of buyers, reducing the impact of potential losses.
  • Facilitating Expansion into New Markets: Trade finance products can be instrumental in supporting SMEs’ expansion into new markets. Export financing, for instance, provides SMEs with pre-shipment or post-shipment financing to fulfill orders from international buyers. This enables SMEs to explore new market opportunities, establish relationships with overseas customers, and increase their global presence.
  • Strengthening Supplier and Buyer Relationships: Efficient supply chain management is crucial for SMEs. Trade finance products such as supply chain finance or factoring can help SMEs optimize their working capital by extending payment terms with suppliers or accelerating receivables from buyers. This fosters stronger relationships along the supply chain, encourages repeat business, and potentially leads to more favorable terms and discounts.
  • Enhancing Creditworthiness: Trade finance products can contribute to improving an SME’s creditworthiness. By utilizing these products and demonstrating responsible financial practices, SMEs can establish a positive credit history, which can be beneficial for future financing needs. A strong credit profile increases the likelihood of obtaining additional financing at favorable terms, supporting ongoing growth and expansion initiatives.

Trade finance products offer a range of benefits for SMEs, including access to working capital, risk mitigation, facilitation of market expansion, strengthening of supplier and buyer relationships, and enhancement of creditworthiness. By leveraging these financial tools, SMEs can overcome the challenges associated with capital constraints, mitigate risks, and seize growth opportunities. It is important for SMEs to work closely with financial institutions or specialized trade finance providers to identify the most suitable trade finance products that align with their unique business needs and objectives.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

For small and medium-sized enterprises (SMEs), access to capital is often a critical factor in driving growth and success. While traditional financing options may not always be readily available, trade credit lines offer a valuable solution for SMEs to manage their cash flow, secure inventory, and foster business relationships. In this article, we will explore how SMEs can benefit from trade credit lines and leverage this financial tool to fuel their expansion.

Understanding Trade Credit Lines:

Trade credit lines refer to a form of financing that allows SMEs to purchase goods and services from suppliers on credit. Essentially, it is an agreement between the SME and the supplier, where the supplier extends a line of credit, enabling the SME to make purchases and defer payment within a specified period. This arrangement provides SMEs with increased flexibility and working capital to manage their day-to-day operations and support growth initiatives.*

Benefits of Trade Credit Lines for SMEs:

  • Improved Cash Flow Management: Trade credit lines enable SMEs to access goods and services without the immediate need for cash payments. This flexibility in payment terms allows SMEs to manage their cash flow more effectively, ensuring they have sufficient funds to cover other critical business expenses, such as payroll, marketing, and overhead costs.
  • Enhanced Purchasing Power: By utilizing trade credit lines, SMEs can leverage their purchasing power and negotiate favorable terms with suppliers. This can lead to discounted prices, volume discounts, or preferential treatment, allowing SMEs to reduce costs and improve profit margins. Moreover, access to a trade credit line can enable SMEs to secure inventory and necessary supplies, ensuring uninterrupted operations and meeting customer demands.
  • Building Stronger Supplier Relationships: Trade credit lines can foster stronger relationships between SMEs and their suppliers. By consistently making payments within the agreed-upon terms, SMEs can establish trust and credibility, potentially leading to more favorable terms, increased credit limits, or priority access to products and services. These enhanced supplier relationships can provide a competitive advantage for SMEs in the marketplace.
  • Supporting Business Growth and Expansion: Trade credit lines serve as a valuable tool for SMEs looking to expand their operations. With increased access to working capital, SMEs can seize growth opportunities, such as launching new product lines, entering new markets, or scaling their operations. The ability to secure inventory and meet customer demand without immediate cash outflow can be instrumental in driving business expansion and success.
  • Building Credit History: Utilizing trade credit lines responsibly can help SMEs establish and strengthen their credit history. Consistently making payments within the agreed-upon terms demonstrates financial responsibility and can improve the SME’s creditworthiness over time. A positive credit history can open doors to additional financing options in the future, providing SMEs with even more opportunities for growth and development.

To conclude, trade credit lines offer significant advantages for SMEs, providing them with improved cash flow management, enhanced purchasing power, stronger supplier relationships, support for business growth, and the ability to build credit history. As SMEs navigate the challenges of securing financing, trade credit lines can serve as a valuable tool to drive their success. However, it is crucial for SMEs to maintain responsible financial practices, communicate effectively with suppliers, and carefully manage their credit obligations to maximize the benefits and sustain long-term growth.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

Invoice discounting is a financial tool that allows companies to access cash from unpaid invoices, and it can be particularly beneficial for businesses involved in international trade transactions.

One of the main benefits of invoice discounting for international trade transactions is that it can help companies to improve cash flow. International trade transactions often involve longer payment terms and a higher risk of non-payment, which can make it difficult for companies to manage their cash flow. Invoice discounting allows companies to access cash from unpaid invoices much faster than waiting for customers to pay in full, which can help to alleviate cash flow constraints.

Another benefit of invoice discounting for international trade transactions is that it can help companies to manage the risk of non-payment. In international trade, it can be difficult for companies to assess the creditworthiness of customers and the risk of non-payment. Invoice discounting companies will often conduct credit checks on customers before advancing funds, which can help companies to identify potential risks and make more informed decisions about which invoices to discount.

Additionally, invoice discounting can also help companies to manage the currency risk. Invoice discounting can be provided in the local currency, therefore reducing the impact of currency fluctuations on the company’s treasury.

Invoice discounting can also help companies to maintain a good relationship with their customers. Instead of having to wait a long time to get paid, companies can use invoice discounting to get paid quickly and maintain a good relationship with their customers.

Furthermore, Invoice discounting can also help companies to free up working capital that can be used for other purposes such as expanding the business, investing in new equipment, or hiring new staff.

In conclusion, invoice discounting is a valuable tool for companies involved in international trade transactions. It can help companies to improve cash flow, manage the risk of non-payment, manage currency risk, maintain a good relationship with their customers and free up working capital for other purposes. Companies should consider using invoice discounting as a way to better manage the financial impact of international trade and maintain a strong, healthy bottom line.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

What is an escrow account?

An escrow account is a financial arrangement in which a neutral third party, known as an escrow agent, holds and regulates the payment of funds required for two parties involved in a given transaction. It is often used in real estate transactions, but can also be used in international trade to ensure the secure and efficient exchange of goods and services.

Why should you use an escrow account?

One of the main benefits of using an escrow account for international trade is that it provides a level of security for both the buyer and the seller. The escrow agent acts as a neutral intermediary, holding payment until the goods or services have been delivered and both parties are satisfied. This eliminates the risk of non-payment or non-delivery, which can be a major concern in international trade.

Another benefit of using an escrow account is that it helps to streamline the payment process. Instead of having to navigate the complexities of international wire transfers or other forms of payment, both parties can simply deposit their funds into the escrow account and the escrow agent will handle the rest. This can be a major time-saver and can help to reduce the risk of errors or misunderstandings.

In addition, an escrow account can also be used to ensure that all necessary documentation is in order before a payment is released. This can include bills of lading, invoices, and other important documents that need to be reviewed and verified before payment can be made. This helps to ensure that all parties are in compliance with the terms of the transaction and can help to avoid disputes or delays.

While there are many benefits to using an escrow account for international trade, there are also some potential drawbacks to consider.

What are the drawbacks of using escrow accounts?

One of the main drawbacks is the cost. Escrow services can be expensive, and the fees associated with using an escrow account can add to the overall cost of a transaction. This can be especially problematic for smaller transactions where the cost of the escrow services may be a significant percentage of the total cost of the transaction.

Another potential drawback is the time it takes to set up and manage an escrow account. It can take time to find a reputable escrow agent and to get the account set up and running. This can be a major inconvenience for businesses that need to move quickly to take advantage of a particular opportunity.

In conclusion, the use of an escrow account in international trade can provide a level of security and efficiency that is not possible with other forms of payment. By providing a neutral third party to hold and regulate funds, an escrow account can help to eliminate the risk of non-payment or non-delivery, streamline the payment process, and ensure that all necessary documentation is in order. This can be a major advantage for businesses looking to expand their international trade activities.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

Small and medium-sized enterprises (SMEs) often struggle to access trade finance services, which can include things like letters of credit, invoice financing, and supply chain financing. This can be a significant hurdle for SMEs, as trade finance can help these companies grow and compete in the global marketplace.

One reason why SMEs may lack access to trade finance is due to a lack of collateral. Many trade finance providers require collateral, such as real estate or inventory, to secure a loan. However, many SMEs may not have the assets or resources to provide this collateral.

Another reason is a lack of credit history or financial track record. Trade finance providers often rely on credit ratings and financial statements to assess the risk of a loan. SMEs may not have a long history of financial performance or may not have established a credit rating, making it difficult for them to secure trade finance.

Additionally, SMEs may also face difficulty in meeting the documentation requirements of trade finance providers. This can include providing detailed information about the company and its operations, as well as information about the specific trade transaction being financed. SMEs may not have the resources or expertise to provide this information, which can make it difficult for them to access trade finance.

It is difficult to estimate the exact market gap of trade finance services for small and medium-sized enterprises (SMEs), as it can vary depending on factors such as location, industry, and the specific needs of the SME. However, it is widely acknowledged that there is a significant gap in access to trade finance for SMEs.

According to the International Chamber of Commerce (ICC), around 80% of global trade is financed by banks, but only 20-25% of SMEs have access to trade finance. This means that a large percentage of SMEs are unable to access the financing they need to participate in global trade.

The World Bank Group’s International Finance Corporation (IFC) estimates that the global trade finance gap for SMEs is around $1.5 trillion. This gap is particularly acute in developing countries, where the majority of SMEs lack access to trade finance.

Additionally, the trade finance gap is also affected by the COVID-19 pandemic which causes a huge disruption in global trade, causing a huge trade finance gap, making it difficult for SMEs to access the financing they need to continue operations and participate in global trade.

In conclusion, SMEs may lack access to trade finance services due to a lack of collateral, lack of credit history or financial track record, and difficulty in meeting documentation requirements. This lack of access can make it difficult for SMEs to grow and compete in the global marketplace.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specializing in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

Invoice financing is a financial solution that allows businesses to receive cash advances on their outstanding invoices. This can provide a much-needed injection of cash for businesses that are waiting for customers to pay their bills.

There are two main types of invoice financing: invoice factoring and invoice discounting:

Invoice factoring involves selling your unpaid invoices to a third party (called a factor) at a discounted rate. The factor then collects payment from your customers and remits the remaining balance to you, minus their fee. This type of financing is often used by businesses that have a high volume of invoices, and need cash quickly.

  • Advantages of Invoice Financing:
  1. Quick access to cash: Invoice financing can provide businesses with the cash they need quickly, which can be especially useful for businesses that have cash flow gaps due to outstanding invoices.
  2. Flexibility: Businesses can choose between invoice factoring and invoice discounting, depending on their needs and preferences.
  3. Improved cash flow: With invoice financing, businesses can receive cash advances on their invoices, which can help them to meet their financial obligations and invest in growth.
  4. No collateral required: Invoice financing typically does not require collateral, which can be beneficial for businesses that do not have assets to pledge.
  5. Creditworthiness of the customer: Invoice financing companies typically make their lending decision based on the creditworthiness of the customer, not the business.
  • Inconveniences of Invoice Financing:
  1. Cost: Invoice financing comes with a fee, which can be a significant cost for businesses, especially if they have a high volume of invoices.
  2. Loss of control: With invoice factoring, businesses lose control over the collection process, which can be a disadvantage for some businesses.
  3. Impact on credit: When businesses use invoice financing, they are essentially taking on debt, which can have a negative impact on their credit scores.
  4. Risk of default: If a customer defaults on their invoice, the business may be responsible for the unpaid amount, which can be a financial risk.
  5. Not suitable for all businesses: Invoice financing may not be a suitable option for all businesses, particularly those that have a small number of invoices or a high-profit margin.

Invoice discounting is similar to invoice factoring, but instead of selling the invoices, the business continues to collect payment from its customers. The lender, however, will provide an advance on the invoice amount, minus their fee. This type of financing is often used by businesses that want to maintain control over the collection process.

  • Advantages of Invoice Discounting:
  1. Maintaining control: Invoice discounting allows businesses to maintain control over the collection process, which can be beneficial for businesses that want to maintain a good relationship with their customers.
  2. Flexibility: Invoice discounting allows businesses to choose how much of their invoices they want to finance, which can provide them with more flexibility than other forms of financing.
  3. Quick access to cash: Invoice discounting can provide businesses with quick access to cash, which can be especially useful for businesses that have cash flow gaps due to outstanding invoices.
  4. Confidential: Invoice discounting is often a confidential arrangement between a business and its lender, which can be beneficial for businesses that want to keep their financing arrangements private.
  5. Creditworthiness of the customer: Invoice discounting companies typically make their lending decision based on the creditworthiness of the customer, not the business.
  • Inconveniences of Invoice Discounting:
  1. Cost: Invoice discounting comes with a fee, which can be a significant cost for businesses, especially if they have a high volume of invoices.
  2. Risk of default: If a customer defaults on their invoice, the business may be responsible for the unpaid amount, which can be a financial risk.
  3. Limited amount of funding: Invoice discounting typically provides a business with a limited amount of funding, which may not be sufficient for businesses that need a large injection of cash.
  4. Impact on credit: When businesses use invoice discounting, they are essentially taking on debt, which can have a negative impact on their credit scores.
  5. Not suitable for all businesses: Invoice discounting may not be a suitable option for all businesses, particularly those that have a small number of invoices or a high-profit margin.

Both invoice factoring and invoice discounting can provide businesses with the cash they need to meet their financial obligations and grow their operations. However, it is important to keep in mind that invoice financing comes with a fee, so it is important to carefully consider the cost and compare it to other forms of financing before making a decision.

In conclusion, Invoice financing is a financial solution that can help businesses to bridge cash flow gaps by providing an advance on outstanding invoices. It is important to carefully consider the cost and compare it to other forms of financing before making a decision.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specializing in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

For every company, cashflow is a crucial aspect in order to sustain its activity. In business cash is king specialy right now.

There are many reasons to improve your cashflow. It could be for an investment, to establish a security mattress or simply to have peace of mind without having to run after ways to bring in cash quickly.

There are several ways to improve cashflow. This article written by Agicap specialist on the subject will give you different ways to improve your cash flow:

  • Boosting your sales.
  • Reduce the time needed to collect receivables.
  • Use supplier invoice times wisely.
  • Different means of financing.

However, when working with international suppliers it is a little more complex because there are other factors to consider: transportation time, customs clearance of goods, volatility of the foreign exchange market, etc.

When a company imports goods, payment is usually requested at the time of order. The company will take out cash before the goods are shipped. Depending on the geolocation of the supplier, the delivery time can be more or less long. It is necessary to count on average by sea way from France:

  • 30 to 45 days for China and Asian countries.
  • 10 to 20 days for the USA and Canada.
  • Between 15 to 30 days for South American countries.

To know the transport time of your goods: Searates

With a payment at the order, the company will increase enormously its need for working capital and will put at risk its treasury.

Let’s take a common example:

Company A orders 10,000 Euros of materials from Shenzhen in China. Its supplier asks for cash payment at the time the purchase order is issued. We will call this date N.

The shipping journey of the goods :

shipping journey

 

Simulation on the cashflow of company A :

  • Date N company A pays its supplier -> Cashflow = -10 000 EUR.
  • Date N+5 days: the supplier sends the goods. -> Cashflow = -10 000 EUR.
  • Date N + 45 days (with a France-China delivery time of 40 days): The goods arrive in France -> Cashflow = -10 000 EUR.
  • Date N + 50 days (5 days to sell its goods, which is a record): Company A sells its entire inventory to a customer with a 30-day payment term -> Cashflow = -10,000 EUR.
  • Date N + 80 days: Company A collects its sale -> Cashflow= +10 000 EUR + margin.

In our example above company A has a negative working capital requirement of 80 days. Of course the example is simplified to the maximum but due to the transport time the cash flow risk on the transaction is indeed 80 days.

Negotiating payment terms if possible with your international suppliers is therefore essential. However, this does not solve the problem in its entirety.

Let’s take the same example again, this time company A will have negotiated a payment term of 30 days after the delivery of the purchase order.

Simulation on the cashflow of company A :

  • Date N company A receives the purchase order -> Cashflow = 0 EUR
  • Date N+5 days: the supplier sends the goods. -> Cashflow = 0 EUR
  • Date N+30 days: Company A pays its supplier -> Cashflow = -10 000 EUR.
  • Date N + 45 days (with a France-China delivery time of 40 days): The goods arrive in France -> Cashflow = -10 000 EUR.
  • Date N + 50 days: Company A sells its entire inventory to a customer with a 30-day payment term -> Cashflow = -10,000 EUR.
  • Date N + 80 days: Company A collects its sale -> Cashflow= +10 000 EUR + margin.

In this example, Company A will have reduced its working capital requirement by 30 days, but will still have a 50-day gap. The impact of transportation delays is a major issue for importing companies. However, there are different ways to limit this impact:

  • Negotiate payment terms: 50% on order and 50% on delivery. Your supplier will not totally lose his liquidity and you will only commit a part of your cash flow on the medium term. This is a good way to create a win-win situation for both parties and therefore to establish long-term trust.
  • Work with a financial institution that finances your invoice. At Tulyp, for example, we support our clients in these operations by financing their invoices from 30 days to 120 days. We pay their suppliers when they prove that the goods are on their way and our clients pay us back on the date agreed upfront.

It is imperative for an importing company to have the right partners to manage these different impacts in the best possible way.

Tulyp is a BtoB payment and financing solution that supports importers and exporters on a daily basis. As a FinTech specialized in Trade Finance, we support them in their payment guarantee, financing and liquidity issues. If you have any questions, please contact us. One of our experts will contact you within 24 hours.

Cash is king in business, that is why working capital is one of the most trending subjects right now. They are multiple ways for companies to finance their needs from long-term debt, revenue-based financing, or short terms loans, the financial market offers various instruments for businesses to find the right financing tools.

One of the most common for SMEs is invoice financing which is very common around the world.

What is invoice financing?

Invoice financing is a short-term loan that a financial institution gives to a business based on a face value of an invoice. It can be used on the sale side based on the value of the company clients’ invoices which is called factoring or on the buying side to finance their supply needs

Invoice financing or Factoring on the client-side:

Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full. Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money.

Invoice financing can solve problems associated with customers taking a long time to pay as well as difficulties obtaining other types of business credit.

Consider an exporting company that is using factoring to offset the credit risk on their sales :

  1. The company ships the goods to their client and invoice them.
  2. She sends the invoice details to the invoice financing provider- the factor.
  3. The company received a percentage of the face value of the invoice depending upon the lender’s own risk criteria.
  4. The company collects the payment from their client.
  5. She pays back the factor of the amount lent and receives the portion of the invoice that wasn’t part of the lending deal. (less a service fee)

This financing tool is often used by companies as a liquidity tool to maintain their treasury and offset potential cashflow issues due to late client payments. It is a way of hedging against potential delays on their clients’ repayment.

Invoice financing on the supply side :

On the supply side invoice financing is used as a mechanism to finance operating needs and operations. Based on an invoice due to a supplier, a financial institution will lend the money to a business to pay the amount. The amount lent will be paid back to the financial institution on pre-agreed terms and time frame. This kind of financial tool is a means for companies to finance their treasury and cashflows. A good example of an invoice financing tool for importers is the letter of credit, which is often used for treasury reasons.

Consider a company, that is importing goods they are looking to improve their cashflow so they decide to use the following financing tool describe earlier :

  1. The company and her supplier negotiate the purchase order.
  2. The company goes to see their financial institution and agrees on the following terms. The financial institution will lend them money and the company will pay the loan back in 60 days.
  3. The company pays the supplier with the loan amount and the supplier sends the goods.
  4. The goods arrive 30 days later, the company sells the goods to their clients and gets pays.
  5. On the 60th day, the company pays back the financial institution with small interest.

Using this mechanism, the company didn’t have to engage funds until the 60th day. If the sales cycle allows it, the company pays back the financial institution using the amount she recovered from selling the goods. The cash flow will be impacted positively by this operation.

At Tulyp, we offer these invoice financing tools for our imports & exports clients. As a FinTech specialized in Trade Finance, the Tulyp solution supports international trade actors on their payment guarantees, financing, and liquidity issues. If you have any questions you can contact us, one of our experts will contact you within 24 hours.

Using an escrow account is nothing new in most industries. Often used in real estate or in consumer-to-consumer transactions, escrow accounts are used to offset the counterparty risk for both buyers & sellers.

What is an escrow account?

Escrow is a legal concept describing a financial agreement between a buyer and a seller where a third neutral party will be mandated to hold the funds on their behalf until certain rules or steps are reached in a commercial transaction.

To keep it simple, an escrow account is a temporary pass-through account held by a neutral third party in a transaction. This trusted third party – the escrow agent, will hold the funds until the completion of a transaction process, which is implemented after all conditions between the buyer and seller are settled.

In essence, companies use escrow services when two parties take part in a transaction and there is uncertainty about the fulfillment of their obligations. Escrow services respond to trust issues between both parties.

In International Trade, trust is a key pillar for trading businesses but how do you make sure that the counterparty will hold its position if you send the goods in advance or payment? Escrow services respond to this question by securing both buyer and seller.

How can an escrow account be used for international trading business to offset risk?

To answer this question, it is important to understand the mechanism of an escrow service.

Consider a company that is buying goods internationally. The company needs assurance that it will receive the goods after making a payment. The risk here is that the supplier vanishes after receiving the payment.

To offset that risk the transaction can be made using escrow services:

  1. Buyer & seller will mandate an escrow agent to hold the fund until pre-determined key rules are reached: validation of shipping documents for example.
  2. Buyer transfers the funds to the escrow account that is determined for the transaction.
  3. Escrow agent notifies the seller that the money is held into the account. The sellers now has the assurance that he will receive payment when pre-determided rules are respected.
  4. Sellers shipped the goods and send the shipping document to the escrow agent.
  5. Escrow agent verifies the authenticity of the shipping documents.
  6. Escrow agent release the payment to the seller after validation of the pre-determined documents.

In this transaction example both buyers and sellers have the assurance that the other party will fulfill their obligations :

  • Sellers know that he will receive the payment from the seller if he completes his obligations.
  • Buyer knows that the funds will only be released if the seller complete his obligation before receiving the payment.

In international trade, escrow services offset the international counterparty risk and the fear of the unknown of both parties while mitigating the financial engagement of their respected companies.

Tulyp is a FinTech specialized in Trade Finance. The Tulyp solution supports international trade actors on their payment guarantees, financing, and liquidity issues. If you have any questions you can contact us, one of our experts will contact you within 24 hours.