As the global economy grows in an increasingly transnational direction, there is a higher demand for Import Financing. Many businesses would be unable to stay afloat and manage their cash flow effectively without having this source of financial cushioning.
As the name implies, Import Financing is a funding mechanism which benefits businesses that import goods from abroad. There are three parties involved in this process:
- The importer (the party purchasing the goods for their business);
- The exporter (the party providing the goods from another country); and
- The lending institution (the party providing the importer with financing).
Importers are typically required to make an upfront payment before their order is delivered and sold. Import Financing provides the necessary funds to cover all costs related to the import process, with the obligation for the importer to repay the funds only once they have received their order and made successful sales. Overall, this facilitates the growth and secures the financial stability of the importing business.
The benefits that Import Financing can provide importing companies are substantial.
Key benefits include the following:
- It provides the importing company with the opportunity to grow and expand. Many businesses are unable to make the upfront payment required by the exporter without financial assistance.
- The range of products an importer can provide has the potential to broaden. This is because they are granted the flexibility to increase the volume of their purchases due to finances being readily available upfront.
- Exporters often offer discounted rates when payments are made upfront by an importer. Bulk orders tend to result in higher savings.
- The importer is given a higher degree of flexibility as they do not have to be concerned about funding until their products have been shipped and sales have been made.
- All costs can be temporarily covered by the financial institution. These extra costs include tariffs, import duties, and freight rates.
- Business owners can focus on their growth and long-term goals and take on less financial pressure. The strain on working capital and cash flow is significantly decreased.
- Each payment plan can be tailored specifically to unique business requirements. A repayment plan can be agreed upon that is tailored specifically to the importer’s unique cash flow and financial needs.
- Business owners do not need to rely on acquiring external investors or sharing equity.
This funding is not reflected on the business’s balance sheet and will not impact the importer’s bank facilities. It also tends to benefit the relationship between the importer and exporter which opens avenues for negotiation with regards to the terms of trade.
Overall, these benefits give importing businesses the opportunity to expand and have confidence in the cash flow and financial stability of their business.
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