Trade credit is among the best financing options you can consider for your business needs. You access the funds needed to manage and sustain your business. While this is a financing option you can easily consider, you should know that trade finance has its benefits and drawbacks. This guide explains more.
Benefits of Trade Finance
Increased Sales
Making trade finance an option for your customers makes increasing overall sales possible. While you expect your customers to pay in cash, some situations might force them to look for credit. It is, however, important to set a limit on how much they can buy on credit and the repayment period.
Gives You a Competitive Advantage
Every business needs high customer traffic to achieve its business objectives. The more traffic you have, the more competitive edge you gain in the market. By offering goods on credit, you make your venture attractive to everyone. The credit terms create loyalty, making your business more competitive.
Builds Customer Loyalty
Once you make trade finance an option, gaining your customers’ trust becomes easier. They appreciate your confidence in them. You also find it easy to create a long-term business relationship with them as long as they take goods on credit.
Incentives for Disciplined Customers
Providing incentives to them becomes an option when you have a fast-paying and disciplined customer base. You can give discounts and offers of specific products to specific customers. This is motivation to transact with you and boost your venture.
Drawbacks of Trade Finance
Negatively Affect Cash Flow
You need proper cash flow in your business to make it sustainable. This is, however, hard when you sell products on credit. Understand that most customers taking goods on credit will take time to pay. This negatively affects your cash flow and strains your budget.
Difficulty in Monitoring Accounts Receivable
You get more outstanding accounts receivable by extending credits. This makes it hard to monitor your customers and get the payments on time. It is easy for your business to struggle when you have cash problems.
Possibility of Bad Debts
Not every customer you trust to take goods on trade finance will reciprocate. The chances that your customers will fail to pay are higher. This brings about bad credit, poor customer relationships, and poor cash flow.
Before you decide to put trade finance as an option, it is crucial to learn more. It is crucial to balance your business operations by learning the benefits and drawbacks of trade credit. Call or visit Porter Capital Group today to learn more.