22-02-2024 09:49

Unlocking opportunities: Working capital offering fuels international trade

A new working capital solution from Nordea allows companies to bridge gaps in the trade cycle by extending credit from the production or purchase of goods to the final sale. The key benefits include improved working capital, flexibility and global reach.
Containership on the sea

Many companies are familiar with the benefits of traditional trade instruments when it comes to shielding importers and exporters from risk and securing payment in international trade. Now Nordea is introducing a new working capital financing solution for import and export transactions – trade term loans. The solution enables companies to improve their working capital and bridge the gap in the trade cycle, by extending credit from the production or purchase of goods to final sale. 

Pär Ullbro, Head of Trade Solutions at Nordea, explains: Trade term loans provide corporate customers with financing for a specific underlying trade of goods or services. It is a flexible solution that can be offered on a standalone basis for an open-account trade or as an extension of a documentary credit or documentary collection. This gives our customers the flexibility to decide which transactions they finance, and how. Trade term loans provide access to immediate financing, allowing companies to optimise their cashflow and fulfil their trade obligations without waiting for payments from their customers or liquidating other assets. 

How do trade term loans work?

Trade term loans help companies bridge the gap in the trade cycle by providing short-term credit for an underlying trade of goods or services. A trade term loan can be extended standalone or under a documentary product, subject to verified trade documentation. The option to combine the trade term loan with a documentary credit or collection provides customers with a method of securing payments and mitigating risk associated with international trade. Access to working capital financing enables extended payment terms for the buyer and improved cash flow for the supplier. Additional benefits from working capital financing include enhanced negotiating power, competitive advantages and strengthened buyer-supplier relationships. 

A key benefit: flexibility

Trade term loans can be used on an ad hoc basis for single transactions or under an uncommitted revolving credit facility to improve cash flow in the trade cycle. This flexibility distinguishes the offering from other traditional supply chain financing programs, which are generally reserved for selected buyers fulfilling specific onboarding requirements. Trade term loans provide flexible transaction-specific financing, tailored to the exporter or importer’s trade cycle, which make them a good solution for companies seeking to expand or those dependent on seasonal purchases or sales. 

“We have worked with Trade Solutions to offer trade term loans as a solution for customers that need to optimise working capital in order to expand,” notes Johan Dahl, Senior Relationship Manager at Nordea. “For a company that is just starting out, trade term loans are a flexible borrowing facility that is easy to structure to their working capital need. At this stage of a company’s development, I think it’s much easier to grow with trade solution services rather than ordinary credit.”

Companies can optimise their cash flow by aligning financing with their trade cycle, preserving their capital for other strategic investments or business opportunities rather than tying it up in trade transactions, explains Mia Stenberg, product manager for the trade loan portfolio.

"This instrument can suit many different customers in a range of contexts, where the access to working capital financing is crucial.,” she says.

Trade term loans provide access to immediate financing, allowing companies to fulfil their trade obligations without waiting for payments from their customers or liquidating other assets.

Pär Ullbro, Head of Trade Solutions at Nordea

Global reach and enhanced negotiating power

Trade term loans provide companies with access to much needed working capital financing, helping them strengthen negotiating power.  

“Trade term loans enable companies to extend credit to their customers without acting as a bank. This is a key competitive advantage when negotiating terms with suppliers or buyers, discounts for early payment or longer credit periods,” says Stenberg.  

Trade term loans can also enable corporates to explore new markets or expand their existing operations by providing the necessary financing to win new supply contracts.

Navigating a turbulent market

One company that has already made use of trade term loans is Norway-based Eurobus Nordic, which imports electrical buses from China to the Nordics. One tender can be for over 50 buses, which means that a single transaction can carry a hefty price tag. 

Eurobus typically uses an import documentary credit from Nordea, which guarantees that the Chinese bus supplier will be paid within 90 days of the buses being shipped. For some transactions, Eurobus has also taken out a trade term loan with Nordea to extend the period of time before the payment is due. 

“During the Covid pandemic, we saw raw material shortages as well as manufacturing and shipping delays. Now, with conflict in the Middle East, we have shipping disruptions in the Red Sea. If ships have to go around Africa instead of the Suez Canal, the financing and time demands will increase significantly. It’s important to have the financial strength and flexibility to overcome these challenges,” says Lasse Andersen, owner and chairman of the board of Eurobus. 

That’s where trade term loans can help a company meet its working capital needs. The product has become increasingly relevant in recent years. In the turbulent times and with costs on the rise, access to secure financing has become vital for our customers to succeed in international trade.