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Manufacturers around the world operate on a credit basis, creating cash flow challenges. When producing to order, manufacturers bear all costs, including materials, labor, and other inputs. Once production is completed, it will be shipped and it will take him 10 to 90 days to reach the buyer, and it may take up to 60 days for the buyer to pay the amount owed. This can result in gaps of up to 150 days, which can severely disrupt cash flow for many small and medium-sized enterprises (SMEs). In addition to this, there is also the risk of late payment, non-payment and bankruptcy of the buyer.
Trade finance exists to reduce the significant financial risks that small and medium-sized businesses face in manufacturing. According to the World Bank, around 90% of businesses around the world are small and medium-sized enterprises, and small and medium-sized enterprises account for more than 50% of employment, so the welfare of small and medium-sized enterprises is very important to the economy as a whole.
According to data from The Hackett Group, recent statistics show that large buyers in the U.S. are taking an average of 54.7 days to pay their invoices, and even some buyers are considered late. As Jesse Hagen, formerly of U.S. Bank, found in a study, this can have a huge negative impact on manufacturers’ cash flow and create a domino effect that threatens their solvency. 82% of small businesses fail due to improper cash flow management.
How does trade finance work?
When the manufacturer ships the consignment, an invoice is provided to the trade finance company and the trade finance company pays the amount immediately so there is no time to wait for the money. The trade finance company then collects the payment from the buyer. Many trade finance packages also include credit protection, ensuring suppliers will be paid even if their customers go bankrupt.
Trade finance allows manufacturers to bridge gaps in the working capital cycle and support long-term payment terms with buyers, as well as meet financial obligations such as on-time payments to suppliers. It will look like this.
Tradewind says resolving cash flow issues can have a significant beneficial effect on a manufacturer’s growth. If you have money quickly, you don’t have to sit around and wait for payments, you can take more orders, expand your production capacity, and expand to more markets. Trade finance also provides peace of mind for small and medium-sized manufacturers because they don’t have to worry about being unable to pay if a buyer defaults or goes bankrupt. Small businesses operate on tighter budgets than large businesses, and missed payments from buyers can be extremely damaging to small businesses.
In many cases, companies with cash flow problems approach banks for business loans, but are turned down for various reasons. Trade finance providers like Tradewind act as an alternative to unsecured financing by buying out receivables and providing cash upfront.
What is Tradewind?
Founded in 2000, Tradewind is headquartered in Mönchengladbach, Germany and backed by major banks in Europe’s largest economy. With more than 20 years of experience in trade finance, Tradewind has offices in more than a dozen countries and is close to manufacturers and buyers. We don’t rely on cookie-cutter services. Instead, we can create bespoke trade finance solutions for our customers, ensuring their unique needs are met.
The company’s management team is comprised of experts in international trade, finance, technology, law, and operations. Together, these skills enable us to offer our clients a comprehensive range of services, from financing to local market insights.
According to Mario Voss, Tradewind’s chief operating officer and executive director, Tradewind conducts thorough research on potential buyers and helps its manufacturer clients understand the companies they work with. Tradewind leverages its connections in various industries, including major insurance companies, to perform due diligence and risk assessments on buyers to determine whether they are financially sound and able to pay for their orders. To do. In some cases, Tradewind determined that certain buyers had financial problems and discouraged customers from doing business with them. A few months later, the buyer went bankrupt.
Tradewind not only facilitates cash flow for small and medium-sized businesses and enables business growth, but it also focuses on sustainability. Twice a year, the company sends customer managers to visit customer facilities to determine whether the customer is upholding its fair operating practices claims, including compliance with labor laws, employee welfare laws, and environmental standards. has been confirmed.
“SMEs are such an important part of the economy, so it is our mission to provide them with reliable financial support so they can plan for their long-term business goals,” said Tradewind Asia CEO says Peter Malevoet. “Over the years, we have seen how trade finance has positively impacted the financial health of companies and the people who make up the companies. This is particularly true for the small business community. Our global scale combined with local expertise across key sectors allows us to establish long-term relationships with our clients, while focusing on assisting them with their future financial needs. We can now serve our clients with confidence.”
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