Let's consider an example
of how a trade finance could benefit a transport and logistics business:
Imagine a freight forwarding company that has secured a contract to transport goods internationally.
The company needs to pay upfront for various expenses, including transportation costs, customs fees, and other logistics-related charges. However, they don't have sufficient working capital to cover these expenses while waiting for payment from their customer.
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To address this cash flow gap, the freight forwarding company decides to leverage trade finance with Cargo Financing. Here's how the trade finance example could unfold:
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Purchase Order Confirmation: The freight forwarding company provides Cargo Financing with the purchase order and contract details from their customer. This helps establish the legitimacy of the transaction and the amount to be financed.
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Pre-shipment Financing: Cargo Financing offers pre-shipment financing to the freight forwarding company. This type of trade finance allows the company to access funds to cover upfront expenses related to the shipment, such as transportation costs, customs duties, and packaging expenses. Cargo Financing may provide a percentage of the confirmed purchase order value, depending on their assessment and agreed terms.
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Fund Disbursement: Upon approval, Cargo Financing disburses the pre-shipment financing to the freight forwarding company. The funds are used to cover the necessary expenses associated with preparing and shipping the goods.
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Shipment and Documentation: The freight forwarding company arranges the transportation of the goods and completes the necessary customs and documentation requirements to ensure a smooth export process.
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Post-shipment Financing: Once the goods have been shipped and the relevant shipping and export documents are obtained, Cargo Financing may offer post-shipment financing. This type of trade finance allows the freight forwarding company to access additional funds while waiting for payment from their customer. The amount offered may be a percentage of the invoice value or a specific amount based on the agreed terms.
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Customer Payment and Repayment: The customer receives the goods, verifies the shipment, and submits payment to the freight forwarding company within the agreed-upon payment terms. The freight forwarding company, in turn, repays Cargo Financing the amount borrowed, along with any applicable fees or interest.
By utilizing trade finance with Cargo Financing, the freight forwarding company can bridge the cash flow gap between upfront expenses and customer payment. This enables them to fulfill their contractual obligations, handle international shipments, and maintain smooth operations without being constrained by working capital limitations.
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It's important to note that the specific terms, financing amounts, fees, and interest rates associated with trade finance can vary based on factors such as the creditworthiness of the borrower, the nature of the transaction, and the specific lending policies of Cargo Financing or any other financial institution.