Import and export finance: how to fund the trade cycle

Import export finance is funding that bridges the cash gap between paying for goods and receiving payment for them in an international trade cycle. This guide is for UK importers, exporters, wholesalers and distributors who are growing faster than their cash allows, or who keep hitting the same squeeze each time a large order lands. Smart Funding Solutions compares trade, invoice and stock finance providers across its lender panel to find facilities that match how and when your money actually moves.

The right option depends on where your cash gap sits: paying suppliers before goods arrive, or waiting for customers to pay after delivery. For the wider range of short-term facilities, see our cash flow finance overview.

01Why international trade ties up so much cash

An importer may pay a supplier weeks before goods are shipped, cleared through customs and sold. An exporter may produce and ship goods, then wait on agreed credit terms before an overseas buyer pays. Currency movements, shipping delays, port charges and the risk of a supplier or buyer failing all add to the strain.

Mapping the cash gap stage by stage

Take an importer that pays a deposit when it places an order, pays the balance when the goods are shipped, then pays duty and import VAT (unless it uses postponed VAT accounting) before it can sell. If its UK trade customers pay on 60-day terms, the business is out of pocket from the day it pays the deposit until its customers pay, often several months later. Mapping each of those dates is the first step in choosing finance, because it shows how much you need, for how long, and which stage needs funding.

1. Order placed: deposit paid to the supplier (trade finance or a letter of credit can cover this).
2. Goods shipped: balance paid (trade finance or stock finance).
3. Goods arrive: freight, duty and import VAT paid (working capital or a revolving facility).
4. Goods sold and invoiced: waiting for customers to pay (invoice finance).

02Trade finance

Trade finance funds a specific transaction between the time you pay for goods and the time you are paid for them. Common forms include:

• Supplier payment facilities: a lender pays your overseas supplier, and you repay once the goods are sold or your customer pays.
• Letters of credit: a bank undertakes to pay the seller on behalf of the buyer once agreed shipping and documentation conditions are met, reducing risk for both sides.
• Documentary collections: banks handle shipping documents and release them to the buyer against payment or acceptance.
• Trade credit insurance: protects against customers failing to pay, which can also make receivables easier to finance.

Lenders usually look at your track record in the goods you trade, the strength of your supplier and customer relationships, and your margins on each deal.

03Export invoice finance

Invoice finance releases most of the value of unpaid invoices shortly after you raise them, with the balance (less fees) paid when your customer settles. Some providers fund export invoices as well as UK ones, although the countries involved and the credit standing of overseas buyers affect what they will accept. Selective invoice finance lets you fund a single large export order without committing your whole sales ledger. Our invoice finance hub explains factoring and discounting in full.

Trade finance funds a specific transaction between the time you pay for goods and the time you are paid for them.

04Stock finance for importers

Stock finance uses goods you are buying or already hold as security, providing a short-term loan or revolving line to purchase inventory. It suits importers who must buy in bulk ahead of a selling season. Our guide to stock finance covers how lenders value inventory.

05Asset-based lending and working capital

Asset-based lending combines borrowing against receivables, stock, equipment and sometimes property in one facility that rises and falls with those assets. It usually suits established traders with a substantial balance sheet. Smaller or newer traders often use unsecured working capital loans or a revolving credit facility to cover freight, duties and marketing in new markets; these commonly require a personal guarantee.

06Government-backed export support

UK Export Finance is the UK government's export credit agency. It can support exporters through guarantees to banks for working capital, insurance against non-payment by overseas buyers, and finance for overseas buyers of UK goods. It works alongside banks and other lenders rather than replacing them, and eligibility depends on the transaction.

The British Business Bank's Growth Guarantee Scheme also supports lending to smaller businesses through accredited lenders; check the British Business Bank for current availability.

07What lenders look at for trading businesses

• Trading history, particularly in the goods and markets you trade.
• Turnover, gross margins and profitability per shipment.
• Quality and credit standing of your customers and suppliers.
• Business and personal credit history of the directors.
• How you manage currency, shipping and payment risks.
• A clear purpose for the funding and how each advance will be repaid.

08Documents to prepare

09Common pitfalls

• Funding a long trade cycle with a short-term loan whose repayments start before the goods are sold.
• Ignoring currency risk: a weaker pound can erode the margin that repays the facility.
• Underestimating landed costs such as freight, insurance, duty and import VAT.
• Relying on one large overseas customer, which some lenders will limit.

10Choosing the right option

We are a broker, not a lender. We review your trade cycle, approach trade, invoice and specialist lenders that suit it, and talk you through the terms offered; the lender makes the final decision. When you are ready, you can explore funding options online.