Trade finance makes it easier for businesses to buy and sell goods, bridge cash flow gaps, and capitalise on opportunities at home and abroad. The purpose of trade finance is to increase liquidity for businesses and to improve the management of risk to facilitate trade. Trade finance introduces a third-party into a transaction between a buyer and a seller.

The seller can maintain working capital through invoice financing and guarantee they will receive payment, and the buyer can fund the purchase of goods and ensure they are shipped before payment is released.

Trade finance is different from a traditional business loan or overdraft. While it can help to plug cash flow gaps, trade finance is often used by companies to manage the risks involved with domestic and international trade.

the impact of exports

The evidence shows that businesses trading overseas experience higher growth productivity, and are more likely to innovate.


In 2020, £571.7bn of goods and services were exported by UK businesses despite difficulties through the pandemic


Less than 10% of UK businesses export


14% of UK exporters are 'superstars' (10+ products sold to 10+ markets) compared to 40% in Germany

Information courtesy of CBI August 2022 - see more here.

Why use a business finance broker?

At QED Finance, one application with us, enables a full market search for your requirement. Matching you to the best and most suitable lender, not only saving you considerable time and effort, but preventing multiple credit searches on both your business and the owner/directors personally. A low credit score can limit your options or see you turned down by some lenders.

Click on the icons below to learn about each type of trade finance facility.

Trade Finance

Trade finance is an umbrella term that covers a range of financial products designed to help facilitate trade between businesses.

Letters of Credit

A letter of credit helps to mitigate risk for both the buyer and seller. The third-party financier will guarantee payment to the seller as long as conditions of payment are met. For the buyer, it ensures that the goods are manufactured and shipped before payment is released.


Payment-in-advance is a common requirement for international transactions. The seller will typically require a down payment before manufacturing the ordered goods.

Payment Against Documents

Financiers and importers often require payment against documents to ensure the shipment of goods before payment to the supplier is released. Suppliers are usually required to submit a bill of lading to the third-party financier before the payment is transferred. Once the documents are submitted, the payment to the supplier is released.

Export Finance

Export finance is specifically designed to help exporters maintain cash flow and increase the speed of sales cycles. You can use your accounts receivables as collateral to access a line of credit. With access to funding, you can produce or manufacture goods for sale and take on new orders rather than waiting for overseas customer payments to clear.

Import Finance

Import finance is a trade finance solution for businesses that purchase finished goods from overseas or domestic suppliers. The funding is linked to an invoice finance facility to provide a line of credit of up to 180 days. You can fund the purchase of goods and repay the amount owed using outstanding customer invoices.

At QED Finance, one application with us, enables a full market search for your requirement. Matching you to the best and most suitable lender, not only saving you considerable time and effort, but preventing multiple credit searches on both your business and the owner/directors personally. A low credit score can limit your options or see you turned down by some lenders.

Apply for funding now

Purchase Finance

Purchase Finance is a form of Trade Finance that is available to stronger (insurable) buyers where the finance provider does not need to see a contract with an end-customer. The financier will make the purchase on the client’s behalf on the back of insuring the client. These facilities are now available from as little as £50,000 upwards.

At QED Finance, one application with us, enables a full market search for your requirement. Matching you to the best and most suitable lender, not only saving you considerable time and effort, but preventing multiple credit searches on both your business and the owner/directors personally. A low credit score can limit your options or see you turned down by some lenders.

Apply for funding now

Why Companies Need Trade Finance?

Both buyers and sellers can benefit from trade finance.

For buyers, an investment in goods can make a significant dent in working capital. This can be a considerable problem for importers purchasing goods from overseas. Being able to access trade finance allows importers to fund the purchase of goods and generate revenue without suffering cash flow gaps while waiting for goods to arrive.

For suppliers, working with a large client or offering extended payment terms can result in a shortage of working capital. Trade finance enables companies to release the capital tied up in the manufacturing and shipment of goods.

A lack of cash flow is not the only reason companies need trade finance. Many large businesses with sufficient liquidity seek trade finance to mitigate the risk involved with international and domestic commerce.

How Trade Finance Can Reduce Risk

Trade finance helps to mitigate risk by accommodating the conflicting needs of the buyer and seller.

The seller would prefer to receive payment upfront to avoid the risk that a buyer will be unable to pay for goods once they have been shipped.

The buyer would prefer extended payment terms to ensure the goods are shipped and to avoid the risk of paying for goods that are not received.

A trade finance solution can be used to reduce the risk for both parties. For example, a letter of credit can be used to ensure that payment is only released once the supplier has presented the bill of lading to the financier. The letter of credit offers the seller a guarantee that the goods will be paid for once they are shipped.

Trade finance covers a range of financial solutions that can be tailored to the needs of importers and exporters. Multiple financial products can be used together to facilitate trade and ensure a smooth transaction.

The Benefits of Trade Finance

Aside from risk mitigation, trade finance offers many benefits for businesses looking to purchase and sell goods in the UK and around the world.

A funding facility helps to increase liquidity and avoid any cash flow gaps. You can pay your overheads and be confident that you have the financial backing to take on new orders. You may be able to offer extended payment terms to your customers, or secure bulk buying/early payment discounts from your suppliers to increase your margins.

Trade finance empowers SMEs with the capital they need to increase the turnover of goods, secure deals with larger customers, and scale revenues to increase profitability.

Why not just use Telegraphic Transfer and Open Accounts?

Telegraphic transfer is a simple, fast and straightforward way of moving funds between buyers and sellers. It’s essentially an electronic way of paying cleared funds to a designated bank account.

While it remains one of the most common and practical methods of payment in trade finance transactions, used in isolation it has one significant shortcoming – it imposes significant risk on the buyer.

Without any means of quality assurance or of even obtaining a guarantee of delivery, the buyer is exposed to the possibility of not getting the service or merchandise they paid for. Put simply, a telegraphic transaction pushes all risk onto the buyer.

An alternate mechanism is for the exporter to use an open account. In this arrangement, the exporter extends an open line of credit to international customers, with a request to be paid on delivery.

Obviously, this is a great arrangement for the buyer. The exporter, however, is accepting considerable risk. Not only is the exporter dependent on the good faith of their customer, they’re also vulnerable to unforeseen circumstances in the shipping process, unfavourable exchange rate variation and the list goes on.

Both illustrate an important basic principle for trade finance: the importance of mitigating risk.

What is a Letter of Credit?

A letter of credit is a trade financing mechanism designed to allow both buyers and sellers to mitigate some of the inherent risks in international trade, such as non-payment, currency value fluctuation and political or economic instability.

In somewhat simplified terms, here’s how it works.

When a buyer (the importer) wishes to purchase goods from an exporter, they’ll approach their bank with a purchase order. Provided they’re creditworthy, the bank will then issue a letter of credit.

The exporter’s bank will then request the letter of credit from the buyer’s issuing bank. Once the letter is received and its terms verified, the exporter’s bank will clear the exporter to ship the goods.

On receiving the shipping papers, the exporter’s bank will issue payment to the exporter. The shipping papers will then be forwarded to the importer’s bank and payment will be requested from the importer.

By acting as a go-between for the buyer and the seller, a letter of credit greatly reduces both parties’ risk. It’s a critical tool in much of the international trade taking place in the world today.

However, letters of credit only solve part of the problem. They also create their own problems.

While this trade finance instrument reduces risk, it doesn’t eliminate it entirely. Letters of credit are typically filled with complicated and detailed provisions. Any discrepancy or oversight in these terms may nullify one of the party’s payment obligations.

They can also involve slow approval times (months in some instances), which hamstrings importers and exporters alike in responding to market demand.

Perhaps most critically, importers can only use a letter of credit if they’re deemed creditworthy and the line of credit will have a direct impact on the importer’s banking operations.

Are there any Enhanced Import and Export Financing Solutions?

The letter of credit is a powerful trade finance tool, but on its own it’s insufficient to meet the demands of international business.

More sophisticated and all-encompassing trade finance tools are available. These are designed to allow businesses faster access to finance, greater adaptability to market changes and improved cash flow throughout the entire cycle of order through to shipping and delivery.

What is Import Finance?

The goal of import finance is to improve the purchasing power of importers by giving them the option to defer part or all of their purchasing costs until they realise a profit from sales.

Import finance is frequently combined with a letter of credit arrangement to simultaneously offer the importer both greater flexibility and protection against risk factors.

In simple terms, here’s how import finance works.

The buyer will apply for an import finance transaction with a finance institution. Once approved, a letter of credit or telegraphic transfer will be initiated and the seller will produce and ship the ordered goods.

The seller will be paid by the buyer’s bank and an import bill will be created.

Once the goods are cleared and reach the buyer, the import bill will be repaid from debtor finance proceeds. The buyer can then clear the debtor finance on agreed terms.

The benefits here are twofold.

The lengthy period between ordering goods and receiving payment is avoided, assisting both the importer and the exporter in doing business. The buyer will also benefit from quicker growth and stronger sales due to the increased purchasing power import finance can offer.

The cost of this kind of service varies between finance institutions, as do the terms of repayment.

What is Export Finance?

Less than 10% of UK businesses are currently involved in export.

Long payment terms can further exacerbate their working capital challenges. Long delays for cross-border transactions are now commonplace.

Using export finance, sellers can receive funding against invoices raised on overseas customers. There are two major benefits here for the exporter. This removes the barrier of tied-up working capital and alleviates transitional financial pressures.

It also means the exporter can trade on open account terms (usually utilising export credit insurance for added security), thus reducing a critical barrier to international sales.

Export finance is often offered as part of a comprehensive package of services, known as export factoring. With this package of services, rapidly available export finance is provided against invoices.

The CBI here in the UK are calling out for change, with their slogan “Make The UK An Exporting Superpower” You can learn more about it here.

While the world is becoming increasingly interconnected, small and medium sized enterprises in the UK face unique challenges in accessing international markets.

Trade finance is a crucial tool in paving the way for international business. Not only does it open the opportunity for risk mitigation, it offers importers a solution to cash flow challenges and exporters the required capital to fund their expansion.