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Finance Focus helps businesses navigate the ever-evolving world of finance. Each episode features expert insights, practical advice, and in-depth discussions on topics such as crowdfunding, trade finance, angel investing and debt. Hosted by Tracy Smart from The Smart Team and Sam Jones from Satellite Finance.
[00:00:00] Tracy Smart: Welcome back to Finance Focus. I'm Tracey Smart, here with my fantastic co host Sam Jones. If you've missed our first few episodes, don't worry, you can catch up on whatever platform you listen to your podcasts on.
[00:00:18] Today we are bringing you a special bite sized edition that will give you a taste of the valuable insights we shared about trade finance.
[00:00:28] Sam Jones: In a longer episode, we delve deep into the world of trade finance. We're joined by the excellent Steve Rose, CEO of Tint Financial Services, who provided a really interesting and incredible insight into this kind of finance and where it works well.
[00:00:41] Tracy Smart: Today in our Tips Under 10, you'll get a glimpse of the secrets behind the successful trade transaction and some essential do's and don'ts. Whether you're commuting, taking a coffee break or just have a few minutes to spare, tune in and get inspired.
[00:00:57] So, Steve, what would be your tips under ten for somebody that's considering embarking on trade finance to fund their growth?
[00:01:07] Steve Rose: Yes. So the, I mean, obviously your starter should always be, that the transaction is working for you as a company and that you're, you're looking at doing additional, trading activity, which adds to your bottom line. And then what you would think about when you're trading cross border, would be if I want additional finance, is the best, most cost effective route, to use my existing overdraft type facility, or does this work with,a trade finance, facility, and trade finance really will look to make sure your existing funding arrangements, allow a trade finance facility to sit alongside them.
[00:01:44] Sometimes companies have, covenants that cover all of their assets and it therefore becomes more difficult. It's not impossible, but it becomes more difficult. You want to check your existing, funding facilities. When you're looking at doing the transaction, you need to, think about the insurance and the,documentation side and the logistics side as well.
[00:02:03] So you can talk about the whole transaction with,with your broker and you should have a, conversation about the totality.
[00:02:09] Tracy Smart: Yeah. And you mentioned in the, longer episode that actually that affects the size of the deal because those costs can become quite disproportionate
[00:02:17] Steve Rose: They can, yeah. Absolutely. So, you know, you want to be able to work with a broker to get those costs down to make the transaction effective, for you. if you're thinking about when you're looking at the choices between them, the main advantage with,a trade facility is you're, paying for it when you're using it because you're adding it to do additional trade.
[00:02:35] And that kind of flexibility is quite important. Whereas if you're like taking out a new loan on an asset or something to pay for that kind of thing, you're paying for that all the time, regardless of what's happening. So,you need to think about whether or not you need that flexibility, and whether that would help you.
[00:02:49] Sam Jones: Well if you were, Client A, getting ready for trade finance, obviously they'll need to speak to the finance broker. Hello. But what do you need to see from them? What documents, what information would you need packaged up to make it an easy decision for you to say yes.
[00:03:03] Steve Rose: Example sales contracts and, Purchase orders with the purchase on the other side, because we're looking to see a clean,document flow of the goods. one of the other factors I would think about is if your goods are, so the more specialist your goods are and unique your goods are, it then becomes important that you can demonstrate, the strength of the sale on the other side.
[00:03:25] So if you've got a commitment from your customer to buy the goods, it makes it much easier to fund something if it's of a specialist nature.
[00:03:31] Tracy Smart: Some people back that off again with invoice finance as well.
[00:03:34] Steve Rose: No, absolutely. Yeah, so that's one of the advantages of trade finance. It will sit very nicely alongside an invoice financing facility. So you, you can use trade finance to fund it from a point of export to till it arrives in your warehouse, and then once you've invoiced it and build it, then you then use IF on the other side of it.
[00:03:50] So clearly if you've got a clear customer, particularly one who's contracted to take the goods when they arrive, at point, then that's perfect because then you've got funding all the way through. and,we can work with the invoice financer to make that transition as smooth as possible.
[00:04:06] What can a client expect? So they're moving goods cross border, let's say a hundred thousand pounds worth of kit coming in a container.
[00:04:13] Yep.
[00:04:14] Sam Jones: How much of that will you fund? Is it 100% or is there a limit?
[00:04:17] Steve Rose: No, that's a very good point. Okay. so typically,a client will put down a 10 percent deposit on the value of the goods, and then we'll fund the other 90%. So that's our, how we normally operate. There is a cash outlay, but obviously it's a lot smaller than if you're buying the goods on the whole.
[00:04:33] And we don't have any additional, like things that get taken off. if you've got an IF facility, you'll get all kinds of deductions. That's not how a trade finance facility works. It's just 10 percent deposit, and that's it as simple as that. The other practical issue to consider actually thinking about it is on the cash side.
[00:04:48] So the cash payment we make direct to the exporter. So we control that cash going out, and we will then want the cash and the imports to come into what we call a collection account. So that's an account we've got control over, and then we then disperse the funds, back to the client and out.
[00:05:03] So we do that for the obvious protection that we don't want the money to come back in and then not be used against the facility.
[00:05:10] So there's, there is that aspect, which we do as well.
[00:05:12] Sam Jones: And are there any things you don't like to see from clients? Any red flags, you know, not semaphore, but something, something's going to make a decline.
[00:05:20] Tracy Smart: If there's no history at all of dealing with import, export and trade, we'll find that difficult to fund, just because, the risk is just too great of, error, as in innocent error. So we like to see somebody with an established business, but what we do want to do is fund growth. Was going to say that makes it very difficult for somebody that's starting out.
[00:05:41] Steve Rose: Yeah, absolutely, and typically the way we do that is, is literally to do it simply by size. So we'll start off funding some small transactions, uh, and then we'll progress up over, say, six months, then doing larger ones. For the simple reason, if you can at least see a few simple transactions going across, then you can build confidence that everybody knows what they're doing in different parts of the track.
[00:06:00] So if somebody Brand new into a new import export point. then we would look to do that. We'd start small and work up.Generally speaking, we'd recommend to most customers, that's probably a good way to start.
[00:06:11] Tracy Smart: For them too, yes.
[00:06:12] Sam Jones: If somebody's going straight into a very large transaction, then that's a high risk thing. So we tend to move away from that. Excellent. That's brilliant. Thank you very much. If anybody wants to find out more, the links to Tint Finance, The Smart team and Satellite Finance will be in the show notes on wherever you get your podcasts.
[00:06:28] Thanks very much and see you soon.