With many Asian manufacturers suspending their operations due to the spread of the coronavirus, businesses at home are faced with an unprecedented challenge. Industries that rely on imported materials and products from China are scrambling to deal with interruptions to their supply chains. For some, that means finding alternative suppliers, while others seek to stockpile what they need to get through the crisis.
Building new supplier relationships, however, can be expensive, and many businesses don’t have a great deal of liquid capital to work with. This is, in part, the result of recent natural disasters, which have kept consumer spending down for months on end. In order to adapt to changing supply conditions, businesses need to be able to make new supplier arrangements quickly.
To help them get this done, Fifo Capital’s trade finance facility offers a unique solution. It allows businesses to fully finance supplier purchases, allowing them to get back to business as usual as quickly as possible. Not only does this help them to avoid potential setbacks, it offers a unique competitive advantage to those who can maintain their operations as competitors struggle.
Businesses risk lost revenue if they can’t adapt quickly
Businesses that rely on Chinese goods need to respond to the potential interruptions to their supply chains as soon as possible. Traditional retailers otherwise risk running out of stock, while auto manufacturers, for example, might be forced to interrupt production because they can’t get one or more of the parts they need. Every day that production is halted, or customers can’t find what they’re looking for on store shelves, translates to losses for those businesses.
Because of this, it’s critical that they find alternatives as quickly as possible. Businesses who have already suffered interruptions will need to immediately find new suppliers in other countries. Others might opt to stock up from existing suppliers now to hedge against possible supply interruptions in the future. For already cash-strapped businesses, that means finding financing that is comprehensive, fast and readily accessible. Fortunately, Fifo Capital’s trade finance facility is designed to accommodate this type of situation perfectly.
How trade finance works
Most businesses don’t have the working capital on hand to pay for supply shipments up front. To get the financing they need, they use trade finance. This type of financing provides procurers with funds secured against the stock that they purchased with it. As soon as the stock is in hand, the payment can be issued to the supplier. The procurer can then use the purchased stock to pay back the financier and generate profit.
Suppliers, however, can’t risk shipping goods over international borders to a customer without first receiving payment. This is particularly true for new relationships, where no trust and little rapport has been established. The procurer can’t pay for a shipment until it after arrives, and the supplier can’t send the shipment until some kind of payment is received. Traditionally, this issue is resolved by paying the supplier a deposit up front. Sometimes, however, poor financial circumstances mean that procurers can’t afford that deposit, either.
Financed deposits are the key
Fifo Capital’s trade finance facility is designed to allow businesses to finance the entire purchase, including the deposit. This allows businesses to acquire the supplies they need, even if the recent economic conditions have left them out of pocket. It’s possible to do this, because Fifo Capital lets procurers finance the deposit separately, without using the purchased stock as security. Instead, the funds are secured against outstanding invoices or other business assets.
Use trade finance to boost your business’ recovery
The businesses who respond to the current situation most effectively stand to do more than simply avoid potential disruptions to their supply chains. Instead, they might be able to boost their competitiveness while others in their industry are struggling. Customers who were previously loyal to competitors will be faced with empty shelves, and looking for alternatives. At the same time, temporary scarcity resulting from unsteady supply will likely lead to higher prices.
This represents a significant growth opportunity, and the chance to earn greater profits. Businesses who can maintain their supply chains during this time, or who can adapt quickly, will be able to capture new customers simply by virtue of availability. Moreover, those using trade finance to preemptively purchase and stockpile larger quantities of supplies will be able to negotiate for better pricing, benefiting from economies of scale. This, in turn, allows them to price their own products more competitively.
As China races to manage the coronavirus outbreak, its manufacturers are suffering unprecedented challenges. While this will inevitably affect economies all over the world, it also represents an opportunity to those who react quickly and decisively.
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