Trade finance: how Australian businesses fund buying and selling across borders

Trade finance is the funding that keeps goods moving when the cash hasn’t caught up yet. You might pay a factory in Asia a deposit today, the balance on shipment, then wait weeks for the container, more time to clear customs and sell, and longer again for your own customers to pay. Trade finance pays for each step of that chain against the goods and documents themselves, rather than asking you to tie up your own working capital for months.

It’s a family of products, not a single loan. This page explains the main tools, who uses them and how lenders think, and points you to the more specific pages on import finance and purchase order finance where they go deeper.

What problem does trade finance actually solve?

Every trading business has a cash cycle. For a business that buys and sells across borders, that cycle is long and lumpy:

1. You commit to an order and often pay a deposit.
2. The supplier manufactures, which can take weeks.
3. You pay the balance before or at shipment.
4. The goods spend weeks at sea or in the air.
5. You pay freight, insurance, customs duty and GST before the goods are released.
6. You sell the goods, and your customers may then take 30 to 60 days to pay.

Months can pass between the first payment and the last receipt. A business that’s growing, or bringing in a bigger seasonal order, can be profitable on paper and still run out of cash in the middle of that cycle. Trade finance fills the gap with funding that’s repaid from the sale of the same goods.

What are the main trade finance tools?

Tool	How it works	Who it suits
Letter of credit	A bank promises to pay the supplier once agreed shipping documents are presented	New supplier relationships, large orders, higher-risk markets
Documentary collection	Banks exchange shipping documents for payment or a promise to pay, without guaranteeing it	Established relationships wanting some control over documents
Trade loan / supplier payment facility	The lender pays your supplier directly and you repay within an agreed period	Importers on deposit-and-balance or open-account terms
Export receivables finance	Funding against invoices owed by overseas buyers	Exporters selling on credit terms
Bank guarantees and bonds	A bank guarantees your performance or a payment	Exporters and contractors bidding on large contracts

Most small and mid-sized businesses rely mainly on trade loans and supplier payment facilities, sometimes combined with invoice finance once goods are sold. Letters of credit and guarantees tend to come into play as order sizes grow.

Importers and exporters: does trade finance work differently?

For importers, the pressure point is paying the supplier and clearing the goods. The Australian Border Force notes that goods imported into Australia are generally liable for duties and taxes unless an exemption or concession applies, and GST is payable on imported goods unless they’re exempt. Those costs land before you can sell anything, so a good import facility funds the landed cost, not just the supplier invoice. Our import and supply chain finance page covers this in detail.

For exporters, the challenge is funding production and then waiting on an overseas buyer. The Department of Foreign Affairs and Trade’s export grants and financial assistance page lists support including the Australian Government’s export credit agency, which offers loans, bonds and guarantees when a business’s own bank is unable to help, as well as Export Market Development Grants for marketing costs and duty drawback schemes for imported inputs that are later re-exported. Those programs sit alongside, not instead of, private trade finance.

If you’re planning a large shipment or new supplier, see what funding could cover it before you commit to the order.

What do trade finance lenders look at?

Because the facility is repaid from the goods, lenders care about the transaction as much as your business:

• The goods. Are they easy to value and resell, or highly specialised? Finished, branded products are easier to fund than custom parts.
• The supplier or buyer. How long you’ve dealt with them, their track record and the country involved.
• Your margin. There needs to be enough between landed cost and sale price to cover the finance and still leave profit.
• Documentation. Pro forma invoices, purchase orders, bills of lading, insurance and customs paperwork must line up.
• Your track record. Previous shipments, how quickly stock turns over, and how your own customers pay.
• Existing security. Any general security over the business that may need to be shared or subordinated.

What does trade finance cost?

There’s no standard price, because each facility reflects the goods, the countries involved, your history and the security offered. The cost is usually made up of:

• Interest or a funding charge on each drawing, for the days it’s outstanding.
• Transaction fees for opening, amending or paying letters of credit and handling documents.
• Establishment and review fees for setting up and renewing the facility.
• Foreign exchange costs if you’re paying suppliers in another currency, which can matter as much as the finance charge.

Ask any provider to show the all-in cost of one typical shipment from deposit to final customer payment. That number is far more useful than any single fee.

Illustrative example: a homewares wholesaler

Illustrative example: a homewares wholesaler buys from two overseas factories and sells to independent gift stores and a national online retailer. A larger Christmas range means a $300k order, with a deposit due now and the balance at shipment. The business’s cash is already committed to existing stock.

A trade facility pays both the deposit and the balance directly to the factories, and a separate drawing covers freight and import costs at the border. Once the goods arrive and are delivered to stores, the wholesaler repays each drawing from sales. Unpaid invoices from the online retailer then roll into an invoice finance line, so the cash cycle stays funded from start to finish.

When is trade finance the wrong choice?

• One-off purchases with no resale. If you’re importing a machine for your own use, equipment finance fits better.
• Very small or irregular orders. The set-up may outweigh the benefit; an unsecured business loan sized on turnover, typically $5k to $500k, can be simpler.
• Funding stock that’s already landed. That’s the territory of inventory finance.
• Owners with property equity. A property-secured business loan from $20k to $5m can fund several shipments at once with far less paperwork per order.

Not sure which camp you’re in? The industry finder shows how lenders look at importers, manufacturers and wholesalers.

Got a shipment to fund?

Trading across borders is hard enough without your cash being stuck on a ship for six weeks. Tell us what you’re buying or selling, roughly how big the order is and when the money’s needed. It takes about 60 seconds to enquire and there’s no credit check at that first step. Your details aren’t sprayed across a list of lenders. A real person who understands supply chains reviews your situation and calls you. Accurate details on the form, especially order value, timing and whether you own property, mean the first option we show you is a realistic one.

Check your trade funding options →