Funding for Importers and Exporters

The cash conversion cycle for trading companies

Count the days from paying a supplier to receiving payment from a customer. That total is how long your money is tied up.

For an importer, the days include production time, ocean or air freight, customs clearance, delivery to your warehouse and then your customers' payment terms. It is common for money to be out for 90 to 150 days. During this time, rent, payroll and the next order still need funding.

Exporters face a similar cycle, plus risks of foreign payment delays and currency swings. Write the timeline down for your top three products, because each may be different.

Ask each supplier about payment terms too. A deposit of 30 percent with the balance before shipping ties up less cash than full payment up front, and the difference can shorten your funding need by weeks.

Landed cost: the number that matters

Landed cost is the full price of a unit after freight, duties, insurance, clearance fees and handling. Price and funding decisions should start there.

Beyond the supplier invoice, add shipping, customs duties, port fees, a customs clearance fee, inland trucking, insurance and warehouse handling. Rates and duties change, so check current figures with your customs clearance agent or the official tariff schedule.

Once you have landed cost per unit, subtract it from your selling price to see true margin. Many new importers are surprised by how much freight and duty reduce the margin they thought they had.

Example: funding one container order

A container order pays back when the margin on the goods exceeds the financing cost over the full cycle. Check it with conservative sell-through.

This is an illustrative example. An importer orders a container of goods for $40,000. Landed cost after freight and duties is $55,000, and the goods should sell for $95,000.

1. Gross margin if all sells: $40,000.
2. If financing the $55,000 costs $9,000 in total over about four months, the margin after financing is $31,000.
3. If only 70 percent sells in that time, revenue is $66,500 and margin after financing is about $2,500.

The sell-through assumption decides the outcome. Use a tough one. Our guide to inventory funding payback math covers the same method.

Products that fit trading businesses

A line of credit handles repeated orders, working capital covers a single large order, and term loans suit planned purchases such as a warehouse upgrade.

A business line of credit lets you draw for each shipment and repay as goods sell, so you pay only for the time you use. Working capital is quick for a time-sensitive supplier deposit. Trade finance products such as letters of credit and purchase-order financing are offered elsewhere. We do not place them, but you should know they exist when comparing.

Keep the order size matched to your storage and sales speed. Ordering a full container when half would sell in the season costs both storage and funding charges, so test smaller orders when you are unsure of demand. Reorder points based on real sell-through keep cash from sitting on shelves.

What funders check

Funders review three months of bank statements, time in business and revenue. Trading businesses should show a clear pattern of supplier payments and customer receipts.

ROI Funder considers 500+ FICO, 6 or more months in business and $20,000 or more in monthly revenue. Large wires to overseas suppliers and incoming customer payments will be visible, so be ready to label them. A one-page summary of your top suppliers, customers and typical order sizes can help a funder understand the file.

Keep business and personal accounts separate, and keep records tidy for customs and tax reasons.

If your business is newer, say so plainly and show the most recent months of deposits. Funders respond better to a clear, honest picture than to a rosy one that the bank statements contradict.

Currency, tariffs and supply risks

Exchange rates, duties and supply delays can erase thin margins, so build a buffer into pricing and funding.

If you pay a supplier in another currency, a few percent of movement can change your margin. Delays at a port can push customer deliveries back. Funding amounts should include a buffer for these swings, and you should avoid payments that rely on perfect timing. Walk through bad cases using the steps in our payment stress test.

Hedging tools and forward contracts exist through banks, but they are outside what we place. If currency swings are your biggest risk, speak with your bank or accountant about options.

Seasonality and reorders

Many imported categories sell seasonally, so order timing and the funding that supports it should follow the sales calendar.

Holiday goods are ordered months in advance, and the cash is needed long before the selling season. Plan funding to arrive ahead of the order deadline, and avoid ordering more than you can sell in the season, because leftovers tie up cash for a year.