Cash Flow

Trade Finance Explained: Paying Suppliers Before Your Customer Pays You

By Jonmarco Sanchez, Director, OzCap Finance · Authorised Credit Representative 565450 of AFAS Group Pty Ltd (ACL 414426) · MFAA member
Published 26 August 2026 · Last reviewed 20 September 2026

Almost every business that buys goods before it sells them runs the same uncomfortable cycle. The supplier wants paying now, or before anything ships. Your customer pays 30, 60 or 90 days after the job is done. In between sits a hole full of your own money. Trade finance is built to sit in that hole.

The cycle it funds

Write out the dates on a job and the problem becomes obvious. Order the materials in week one. Pay the supplier in week one or two. Wait on manufacturing or shipping. Deliver or install in week eight. Invoice. Get paid somewhere around week fourteen.

That's three months of your cash sitting in someone else's warehouse, on a ship, or on a site. It isn't a loss and it isn't a margin problem. The job is profitable. The money is simply out of your account for a long time before it comes back with the profit attached, and the bigger the order, the longer the money is away and the more of it there is.

Businesses fund that gap out of savings until they can't, then out of the overdraft until that's full, then by turning down work. The last one is the expensive step, and it's usually the one nobody counts.

How a facility runs in practice

You're approved for a limit up front. When you place an order, the lender pays your supplier directly against the supplier's invoice. You take delivery, do the work or sell the stock, invoice your customer, and repay the lender when that money lands.

Each drawdown runs on its own clock, so you're paying for funds only for as long as that particular order takes to turn back into cash. Terms are set to match the trading pattern of your industry, commonly a few months per drawdown rather than years. The finance ends when the job pays instead of hanging around afterwards, which is the part that makes it different from a loan.

Because the money goes straight from the lender to the supplier, it is also difficult to spend on anything else. Some business owners find that restrictive. Most find it useful, since the limit stays available for the purpose it was sized for rather than getting quietly absorbed by a slow month.

Importing and buying locally

Imports

Importers use trade finance constantly, because the timeline is the worst version of the problem. An overseas supplier commonly wants a deposit to start production and the balance before the container leaves. Then there's transit, customs and delivery, and only after all that do you get to invoice a customer who takes another 60 days. Months of money can be tied up in stock you haven't sold yet.

A facility built for imports handles the payment side of that in the supplier's currency where needed, and takes the pressure off the moment where a deposit request lands before the last shipment has even been paid for by your customers. Worth raising currency movement with us as well, because on a large order a shifting exchange rate can eat a chunk of the margin you priced the job on.

Local supply

The same structure works for domestic buying and is underused. A builder buying materials before the first progress claim, a wholesaler stocking up before a busy season, a fabricator buying steel for a large fixed-price job: all of them are paying up front and getting paid at the end. You don't need a container or a customs broker for trade finance to be the right tool. You just need suppliers who want paying before your customer does.

Where invoice finance picks up

These two fit together and get confused constantly. Trade finance covers the front half of the job, from paying the supplier to delivering the goods. Invoice finance covers the back half, advancing you cash against the invoice you've raised so you aren't waiting on your customer's payment run.

Run together, they close the gap from both ends. The supplier is paid on day one by the trade facility, and when you invoice, the invoice facility advances most of that value and repays the trade drawdown, leaving you waiting on very little of your own money for very long. For a business with long supply lead times and long customer terms, that combination is the difference between growing and treading water.

They should be structured together rather than arranged separately six months apart, so the two facilities don't overlap or double up on security. That's a conversation worth having once, properly, at the start.

When a big order is an opportunity, and when it's a trap

The biggest order you've ever been offered is exactly when this decision gets made badly, because the excitement is doing the arithmetic. A few honest questions sort it out.

Is the margin still there after funding costs? A job with a thin margin and a four-month cash cycle can cost you more to fund than it earns. Run that number before you accept, not after the stock arrives.

Will this customer actually pay, and on what terms? A large order from a customer you've never dealt with, on terms you'd normally refuse, is a credit decision dressed up as a sales win. Ask for a deposit. Check them out.

What happens if they cancel or delay? If the goods are generic stock you can sell to someone else, a delay is annoying. If they're custom-made for one buyer, a cancellation leaves you holding a facility and a warehouse full of something nobody else wants.

And can the business physically deliver it? Doubling your usual order often means more labour, more space and more supervision, all of which cost money the order hasn't paid you yet. Trade finance solves the supplier payment. It doesn't solve capacity.

Answer those four honestly and you'll know whether you're looking at growth or at a very well-funded mistake.

Who it suits, and what to bring

Businesses that buy stock or materials ahead of getting paid for the finished job: importers, wholesalers, distributors, builders and manufacturers, generally with an established trading history and identifiable suppliers and customers on the other side of each transaction.

Lenders will want to understand the trade cycle itself, so come with the shape of it: who your suppliers are and what terms they give you, who your customers are and what terms you give them, how long a typical order takes from payment to payment, and recent financials or BAS statements along with your bank statements. Existing purchase orders or supply agreements help a lot, because they turn your explanation into evidence.

Keeping supplier funding on its own line also protects everything else. A single large stock purchase run through your line of credit can swallow the limit you were keeping for wages, rent and the unexpected. Separate facilities for separate jobs is usually cheaper and always clearer.

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