For businesses purchasing goods from suppliers or offering extended payment terms to customers, managing working capital can become challenging.
Trade Finance and Invoice Finance can help businesses access funding at different stages of the trading cycle, supporting cashflow, customer orders and growth opportunities.
Here’s how both facilities work and when they may be suitable for your business.
What is Trade Finance?
Trade Finance helps businesses purchase goods, stock or materials from domestic and international suppliers without having to cover the full cost upfront from their own working capital.
It can bridge the gap between paying suppliers and receiving customer payments, allowing businesses to fulfil orders while retaining cash for day-to-day operations.
Why Do Businesses Use Trade Finance?
Managing Supplier Payments
Businesses often need to pay suppliers before receiving payment from customers. Trade Finance can help fund these purchases without relying entirely on existing cash reserves.
Fulfilling Larger Customer Orders
Securing a larger contract can require significant upfront investment in stock. Trade Finance can help businesses fulfil these orders without placing unnecessary pressure on working capital.
Managing Longer Trading Cycles
For importers, manufacturing and shipping delays can extend the time between purchasing goods and receiving customer payments. Trade Finance can help manage these funding gaps and maintain cashflow throughout the trading cycle.
What is Invoice Finance?
Invoice Finance allows businesses to access a proportion of the value of eligible unpaid customer invoices rather than waiting for customers to settle them.
For businesses offering payment terms of 30, 60 or 90 days, this can release working capital to support ongoing expenses and business operations.
Why Do Businesses Use Invoice Finance?
Improving Cashflow
Waiting for customer payments can leave businesses short of available working capital. Invoice Finance provides earlier access to funds tied up in outstanding invoices.
Managing Extended Payment Terms
Offering longer payment terms can help secure new contracts and strengthen customer relationships. Invoice Finance can help businesses accommodate these arrangements without placing additional pressure on cashflow.
Accessing Flexible Funding
Not every business requires an ongoing facility across its entire sales ledger. Selective Invoice Finance can fund invoices relating to specific customers, while Spot Invoice Finance can provide funding against individual eligible invoices.
This can be particularly useful when offering extended payment terms to one key customer, providing flexibility without necessarily committing to a wider Invoice Finance facility.
Trade Finance vs Invoice Finance: What’s the Difference?
While both Trade Finance and Invoice Finance can help businesses manage working capital, they provide funding at different stages of the trading cycle.
Trade Finance typically supports the purchase of goods or stock from suppliers, helping businesses manage upfront costs before receiving payment from customers.
Invoice Finance, on the other hand, allows businesses to access funding against eligible unpaid invoices once goods or services have been supplied.
For businesses that purchase stock and offer extended payment terms to customers, both facilities can potentially work alongside each other. Trade Finance can support the initial purchase of goods, while Invoice Finance can help bridge the gap between raising an invoice and receiving payment, depending on the funding arrangements available.
This can provide greater flexibility for businesses managing working capital throughout the trading cycle.
Trade Finance and Invoice Finance Case Studies
Here are two recent examples of how Aston Commercial Finance has supported businesses with their funding requirements.
£500,000 Trade Finance Facility – Supporting a Major Retail Contract
An FMCG business had secured a large contract with multiple major UK retailers but required additional working capital to fulfil the orders.
Aston Commercial Finance worked alongside Treyd Finance to secure a £500,000 Trade Finance facility in just one week, allowing the business to focus on fulfilling its new contracts without relying entirely on existing cash reserves.
£300,000 Selective Invoice Finance – Managing Extended Payment Terms
A beverage manufacturer secured a nationwide contract with Waitrose following a successful trial across its southern stores.
With customer payment terms increasing from 15 to 60 days, Aston Commercial Finance arranged a £300,000 Selective Invoice Finance facility to help the business maintain positive cashflow while supporting the new contract.
Conclusion
Trade Finance and Invoice Finance can both help businesses manage working capital, whether that’s funding stock purchases, fulfilling larger orders or managing extended customer payment terms.
At Aston Commercial Finance, we work with businesses to understand their funding requirements and identify suitable finance solutions.
Get in touch to discuss how Trade Finance or Invoice Finance could support your business.
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