56% of chief economists predicted weaker global economic conditions in 2025 (World Economic Forum), and with the world halfway through the year, we’ve already experienced global crises such as wars and natural disasters. It’s no surprise that the turmoil impacts supply chains.
From delays in supplier shipments and sudden demand spikes to geopolitical events and recessions, these disruptions can place significant strain on your business, regardless of your location. You may struggle to keep inventory stocked, meet customer orders, or manage cash flow.
In simple terms, trade finance provides financial solutions that help you manage these risks.
How Trade Finance Protects Your Business During Supply Chain Disruptions
Maintain Inventory
When supply chains are disrupted, businesses often face a rapid depletion of inventory. This can occur due to factors like shipping delays, raw material shortages, or supplier issues. Without adequate stock on hand, you struggle to fulfil customer orders. Not only does this hurt your bottom line, but it has a negative ripple effect on your reputation.
- Solution: Trade finance helps businesses access the working capital needed to purchase inventory when cash flow is tight or when delays cause inventory shortages. It’s a way for you to continue to purchase stock even when there are cash flow challenges or when payments are delayed from customers.
Imagine a retail business that relies on international suppliers. Due to a global shortage, local production has been delayed, and the retailer’s usual suppliers are unable to deliver on time. With trade finance, retailers can secure the funds necessary to purchase stock from alternative suppliers overseas, ensuring their shelves remain stocked and they can continue to fulfil customer orders without interruption.
Manage Cash Flow During Delays
Payment terms between suppliers and customers often don’t match, which can cause cash flow issues. For instance, your business might receive goods but only get paid by customers weeks or even months later.
This delay can leave you without the necessary cash to pay suppliers on time. Relationships become strained, and operations may even need to halt.
- Solution: Trade finance provides the liquidity needed to bridge the gap between receiving goods and getting paid.
Consider a manufacturer who has just completed a large order, but the payment from their customer is delayed due to extended credit terms. In the meantime, the manufacturer still needs to pay their suppliers for the raw materials used in production. With trade finance, the manufacturer can access working capital to pay suppliers on time and keep their production line moving without delays.
Minimise Supplier Risk
When a key supplier faces financial difficulties or goes bankrupt, it can cause significant disruptions to the supply chain. If you rely on that supplier for critical raw materials or finished goods, you may suddenly find yourself unable to fulfil orders.
Without a backup plan, this situation can escalate into a major crisis.
- Solution: Trade Credit Insurance, a component of trade finance, provides businesses with protection against supplier defaults or non-delivery. This type of insurance helps businesses mitigate the financial risks associated with suppliers who fail to meet their obligations.
A business that sources critical raw materials from overseas suppliers may rely on them for ongoing production. If one of these suppliers faces bankruptcy and fails to deliver, the business risks halting production. However, by using trade Credit Insurance, the business can be reimbursed for the loss.
How to Leverage Trade Finance in Your Business
Step 1: Identify the Need
Before jumping into trade finance, assess whether your business is at risk due to supply chain disruptions. Start by evaluating your operations to identify potential pain points.
- Are cash flow issues a constant struggle, or do you find yourself constantly scrambling to pay suppliers on time?
- Are you facing delays in receiving inventory, which impact your ability to meet customer demand?
- Are there gaps in your supply chain that could halt production?
Step 2: Choose the Right Trade Finance Product
Once you’ve identified the risks, it’s time to choose the trade finance solution that best addresses your needs. There are various products available, each suited to different situations:
- Letters of Credit (LC): If you’re dealing with international suppliers, LCs offer security for both you and your supplier. They ensure that payments are made once agreed-upon conditions, such as shipment delivery, are met. This is ideal when you’re concerned about paying for goods that haven’t been delivered yet.
- Invoice factoring: If your business is struggling with cash flow due to slow-paying customers, factoring allows you to sell your receivables (invoices) to a third party for immediate cash. This provides you with the liquidity needed to pay suppliers on time and avoid production delays.
- Supply chain financing: If you’re looking to maintain inventory levels during a period of disruption, supply chain financing can help. It enables you to unlock working capital tied up in your supply chain, so you can still purchase materials.
Step 3: Partner with a Trusted Provider
Once you’ve decided on the right trade finance product, the next step is to partner with a trusted financing company that understands your business’s circumstances. Look for a business that provides fast access to capital, timely approvals, and ongoing support to help you through any challenges or processes.
Our team is passionate about enabling SMEs to grow amid tough financial times. Can we help you, too? Contact Merchant Factors to discuss our trade finance options and what’s right for you.
References
World Economic Forum. (2025, January). Economic outlook for 2025 weighed down by fragmentation, debt, and political uncertainty. World Economic Forum. https://www.weforum.org/press/2025/01/economic-outlook-for-2025-weighed-down-by-fragmentation-debt-and-political-uncertainty-a05ac309f8/