Tailor-made solutions address importers’ needs

Importers face a very specific set of risks in the environment in which they operate, according to Menso Kwint, accounts executive for Lombard Trade Finance, and trade finance can be seen as one risk management control element. “Above all,” he told FTW, “the biggest challenge is often access to sufficient capital required to run and grow a business. Trade finance may alleviate this problem for retail, wholesale and manufacturing companies by providing an extra layer of funding geared towards the purchase of inventories.” Kwint listed some of the other risks that may face an importer. “Up-and-down swings in exchange rate can negatively affect an importer if these fluctuations are not correctly handled,” he said. “Competitively priced imported goods become more expensive and less attractive on a weakening rand. “Similarly, a strengthening rand may leave an importer with overpriced stock. To address the latter, a business may use flexible financing facilities to purchase stock only when necessary, and so avoid excessive stock holding. The ability to book forward cover locks in a future cost and hedges against a weakening rand.” There is another specific risk for South Africa. “Often,” said Kwint, “large international suppliers can view this country with uncertainty, and so hesitate to offer beneficial trading terms. However, trade finance swings power back into the hands of a local buyer as foreign suppliers are paid upfront and better terms may be negotiated.” He also pointed out that cash-flow and working capital management would always be difficult in the instance of an importer’s long cash-flow cycles. “Trade finance provides the funding to match these cycles,” he said, “and create a sustainable cash-flow balance.” Kwint also noted that there was no such thing as a ‘one size fits all solution’. “As each company is different,” he said, “through understanding each unique position, Lombard Trade Finance seeks to provide alternative, yet viable, tailor-made solutions to enable business.” Also, where bank funding typically requires 100% cash collateral in order to establish a letter of credit, the company securitises through inventory and other non-cash assets, so freeing up vital working capital in a business. Forward rates may be booked as an add-on feature and do not reduce the facilities approved. “This extra layer of funding can be extremely useful to fund specific deals or help an existing company through a demanding growth phase,” said Kwint.