Import finance goes by various different names in South Africa, such as:
- Inventory finance.
- Trade finance.
- Stock finance.
Import finance solves the tricky issue of figuring out how you can have enough working capital to import goods from overseas.
If you are a small company then it can be difficult to obtain overseas supplier credit that could help finance the imports. The chances are you must pay upfront when you place the order. This can cause cash flow problems since it may take weeks or even months, for the goods to arrive in South Africa and you can only recoup the money spent on the goods once you can sell them.
There are options you can explore to solve the cash flow problem. Firstly there are lenders who specialise in financing international trade deals. Through their knowledge, networks and infrastructure, they may be able to lessen some of the risks of importing goods. Secondly, they can often use the imported goods as collateral. They will pay the overseas supplier for the shipment and strike a deal with the importer to pay off the amount over time, usually over a period of 6 months. Some of these specialised lenders also offer international trade logistical assistance and can organise the transporting of the goods as well.
Import finance - appropriate or not?
If you need to buy a large number of supplies from an overseas client or market, then yes, import finance is right for you. An import financier will seldom consider finance of less than R400 000. Their smallest clients generally have established businesses that do an annual turnover of at least R2m or R3m.
Is it expensive? Yes. This is because it’s seen as risky business. You could always try to finance your working capital in more conventional ways, before applying for import finance.
The supplies you buy can be used as collateral, so it would be helpful to you if they were products that could be resold easily, as this will lower the amount of collateral that you have to provide. The types of products you import will influence whether the lender will consider using the goods as collateral. For example, if you bring in sought-after, brand name products, they are more likely to accept these as collateral than if you are importing metal fittings that are used by only a few specialised companies.
Many import lenders can offer assistance with shipment logistics and local transport as well. If you are new to importing, it can be extremely valuable to use this service until you get familiar with how international trade logistics work.
Another way to increase your chances of accessing import finance is to have confirmed sales orders from clients. This way your debtors' book can be used as collateral.
When you work out the cost of importing goods, you need to build in transport insurance costs, as well as the cost of the exchange rate insurance.