Import finance: funding stock and goods from overseas suppliers

Why importers need a specific facility

Many overseas suppliers, particularly newer trading relationships or those in certain manufacturing markets, require payment in advance or on shipment rather than offering the credit terms a UK supplier might. That means an importer can be paying for goods weeks or months before they arrive in the UK, are sold on and generate cash back into the business. Import finance is designed specifically to fund that gap, distinct from general working capital facilities which are usually sized against existing trading rather than a specific forthcoming purchase.

How an import finance facility works

A typical import finance facility funds payment to the overseas supplier, either directly or by backing a letter of credit, and is then repaid once the goods are sold or once an invoice finance facility can be drawn against the resulting sales invoice. Some facilities are structured to fund the full cycle from purchase order through to eventual sale, effectively combining import finance with invoice finance in a single coordinated structure, while others fund only the import leg and expect repayment from existing cash resources once stock is sold.

Lenders assess this primarily on the strength of the underlying purchase order or sales contract, the reliability of the supplier relationship, and the importer's track record of successfully completing similar transactions previously.

Letters of credit versus a straightforward import loan

Where the overseas supplier is unfamiliar or the trading relationship is new, a letter of credit is often the safer route, since it gives the supplier a bank's payment commitment conditional on presenting the correct shipping documents, which reduces the importer's risk of paying for goods that are never properly shipped. Where the supplier relationship is established and trusted, a straightforward import loan or facility, without the additional documentary process of a letter of credit, is usually quicker and cheaper to arrange.

The choice often comes down to how established the relationship is and how much the importer values the additional protection a letter of credit provides against the extra cost and administrative process it involves.

What lenders want to see

Import finance lenders typically want to see the purchase order or supplier contract, evidence of a track record importing similar goods previously, and ideally a confirmed onward sale or a strong indication of demand for the goods once they arrive, since this is what ultimately generates repayment. New importers without a trading history in this specific area will find the market narrower and may need to start with smaller facility sizes or provide additional security until a track record is established.

Common pitfalls

The most common pitfall is underestimating the total cycle time from placing the order to receiving cash from the eventual sale, particularly where shipping delays or customs clearance add unplanned weeks. Building a realistic buffer into the facility term, rather than the shortest possible estimate, avoids the facility running out before the goods have actually converted to cash. It is also worth checking Incoterms carefully on the underlying purchase contract, since who bears risk and cost at each stage of shipment affects both the funding structure and any insurance arrangements needed.