If a business wins a contract to supply goods to a third party, it has to source the goods, pay for them and transport them first to its premises or distribution centre, then forward them to its customer for payment. Depending on the supplier, either a deposit is required or full payment needs to be made before the goods are transported.

Trade finance can fund the full purchase price of the goods and transport to the distributor's premises without the client making a payment. The funder then invoices the end user, receives payment, takes its fees and interest and pays the excess to its client.

In this type of case, the supplier, the client and the end user all need to be reputable and financially sound.

Example

A fork truck supplier had a franchise with an Italian manufacturer and as it had only been in business for one year only had a small credit line with the supplier. They sold two fork trucks but did not have the credit available with the supplier.
A funder was introduced who checked the Italian company, the fork truck company and its customer who had ordered the trucks, and agreed to finance the full purchase costs of the trucks into the UK. The trucks were then delivered to the end user who paid the funder who then paid net proceeds to the client.
This resulted in profit for the client without any financial outlay.