Business Funding for UK Importers and Exporters: A Plain-English Guide

Key points

• Start with the cash gap: is the money stuck before you’ve sold the goods, or after you’ve invoiced?
• Import finance funds supplier payments; invoice finance unlocks unpaid invoices.
• Asset-based lending and revolving credit suit bigger, more established businesses with assets to borrow against.
• Funding and FX go together – if you borrow to pay a supplier in dollars, the exchange rate still matters.

5-minute read

Ask most finance directors at importing or exporting businesses what keeps them up at night, and it’s rarely the product – it’s the cash. You pay your supplier in March, the goods land in May, your customer pays in July… and somewhere in between, the business has to keep the lights on.

That gap is what trade-related funding is for. There’s a lot of jargon out there, so here’s a plain-English tour of the main options – what they are, who they suit and what to watch out for.

First, find your cash gap

Before you look at any product, work out where your cash gets stuck. It’s usually in one of two places:

• Before the sale: you have to pay a supplier (often overseas, often in advance) before you’ve sold anything.
• After the sale: you’ve delivered and invoiced, but your customer has 30, 60 or 90 days to pay.

Some businesses have both. Get this right and the choice of funding becomes a lot more obvious. Get it wrong and you end up with a facility that’s a very expensive square peg in a round hole.

Trade and import finance

What it is: a lender pays your supplier (or gives you the money to) so you can buy the goods, and you repay once you’ve sold them and your customer has paid.

Who it suits: importers and wholesalers who have firm orders but need to pay suppliers upfront – particularly overseas suppliers who won’t offer credit terms.

Watch out for: the facility usually funds specific shipments, so it needs paperwork – purchase orders, supplier invoices and shipping documents. And if your supplier wants paying in dollars or euros, you’ve still got currency risk on that payment. More on that below.

Invoice finance: discounting and factoring

What it is: you borrow against invoices you’ve already raised, rather than waiting for customers to pay. There are two main flavours:

• Invoice discounting – you keep running your own sales ledger and chasing your customers, and the arrangement is usually confidential.
• Invoice factoring – the finance provider takes over collecting the invoices, and your customers pay them directly.

Who it suits: businesses selling to other businesses on credit terms – exporters included – whose cash is tied up in the debtor book.

Watch out for: you’ll typically get an advance against each invoice rather than the full amount, with the balance (less fees) once your customer pays. Factoring means a third party talks to your customers, which some businesses love and others very much don’t.

Asset-based lending

What it is: a revolving facility secured against a pool of assets – debtors, stock, plant and machinery, sometimes property – rather than invoices alone.

Who it suits: more established businesses with a meaningful balance sheet, where invoices alone don’t unlock enough. Because the facility looks at several assets together, it can often release more than a single-asset facility would.

Watch out for: more assets means more reporting and more valuations. It’s a bigger commitment to set up, so it tends to make sense at a larger scale.

Revolving credit facility (RCF)

What it is: a committed credit line you can draw, repay and redraw as you need, up to an agreed limit – a bit like a grown-up overdraft, without a fixed drawdown schedule.

Who it suits: businesses with lumpy or seasonal cash needs – stocking up before peak season, say – that want flexibility rather than a one-off loan.

Watch out for: you’ll usually pay for the commitment as well as what you draw, so an unused RCF isn’t free. Lenders also look closely at the strength of the business, so it’s typically for established firms.

Other options worth knowing

• Short-term business loans – a fixed amount for a defined purpose, repaid over an agreed term.
• Asset finance – spreading the cost of vehicles, machinery or technology via hire purchase or leasing, so you don’t tie up working capital.
• Bridging loans – short-term secured finance to bridge a gap between two transactions.

Where FX comes in

Here’s the bit that often gets missed. Funding solves the timing problem – it doesn’t solve the currency problem.

If you borrow in sterling to pay a supplier in dollars in three months’ time, and the pound weakens in the meantime, the goods cost more – and you’ve borrowed to pay for them! The same goes for exporters: an invoice in euros is only worth what the euro is worth when it’s paid.

So it pays to think about the two together. Fix the rate on known supplier payments with a forward contract, and match your hedging to your real, funded cash flows – not more, not less. Our guides on how much to hedge and how far ahead and over- and under-hedging cover the detail, and our FX risk-management service can help.

Arranging funding: Oku Financial

Business funding is arranged by Oku Financial, an Oku Markets brand. It works with business customers only and searches the whole of the market for the right lender and structure – trade finance, invoice finance, asset-based lending, revolving credit and more. See the full range of funding solutions, or talk to Oku Financial about your situation.

Any pricing quoted is indicative and subject to status, and costs are quoted per annum.

Frequently Asked Questions

What is the difference between trade finance and invoice finance?

Trade (or import) finance helps you pay suppliers before you’ve sold the goods. Invoice finance releases cash after you’ve sold and invoiced, by borrowing against what your customers owe you.

Is invoice discounting the same as factoring?

No. With invoice discounting you keep collecting your own invoices, and it’s usually confidential. With factoring, the finance provider collects the invoices and your customers pay it directly.

What is asset-based lending?

A revolving facility secured against a combination of assets – typically debtors, stock, plant and sometimes property. Because it uses several assets together, it can often release more funding than a single-asset facility.

How is a revolving credit facility different from a loan?

A loan is a fixed amount repaid over a set term. A revolving credit facility lets you draw, repay and redraw up to a limit, as your needs change.

Does business funding protect me from exchange-rate moves?

No. Funding solves when you pay; it doesn’t fix the exchange rate. If your supplier is paid in a foreign currency, consider fixing the rate with a forward contract alongside the funding.

Can individuals use Oku Financial?

No – Oku Financial works with business customers only.