Finetrading –
simply explained

Key facts at a glance:

• Pre-financing via finetrading serves to preserve liquidity when purchasing goods.

• A finetrader acts as an intermediary between buyer and supplier.

• The fees depend on creditworthiness and duration of use.

What Is Finetrading?

A lack of liquidity can be problematic for a company's day-to-day business and can also inhibit potential growth. Pre-financing via finetrading can therefore make sense when it comes to procurement.

Finetrading is a bank-independent financial service — also known as warehouse or procurement financing. The finetrader acts as an intermediary between buyer and supplier and pre-finances the negotiated order for the customer.

Through pre-financing, supplier invoices can be settled immediately, and the cash discount obtained can often cover the costs of finetrading. Apart from traditional banks, the providers of this goods pre-financing are companies that specialise in finetrading.

Acting as a new debitor to a supplier, the finetrader pays the outstanding invoice directly after goods delivery to the seller. The finetrader grants the actual purchaser an extended payment term of usually 120 days. The supplier can immediately make business use of the instant liquidity inflow, while the buyer gains time until final payment.

The finetrader charges individual fees for this service, which depend particularly on creditworthiness and duration of use. These typically consist of the negotiated cash discount and deferral fees. The finetrader uses trade credit insurance (receivables default insurance) to ensure the security of the transaction.

The Finetrading Process

Buyer and seller negotiate the terms of a delivery. Since the buyer needs financing, they simultaneously approach a finetrader and undergo a credit check.

The creditworthiness is satisfactory, so a contract is concluded between buyer and finetrader. The goods are now ordered and the seller usually delivers them directly to the purchaser.

The recipient checks the delivery for correctness, completeness, and integrity.If everything is in order, the finetrader pays for the goods and now resells them to the original purchaser. The company then pays the finetrader within the established payment term.

The execution of finetrading is often straightforward in practice. Many providers allow the seller's delivery note to be transmitted via their own platforms. This gives the finetrader quick information and they can settle the invoice immediately.

The Advantages and Disadvantages of Finetrading

The Advantages of Finetrading

Improved supplier relationship: Potential tensions between buyer and supplier are reduced. The purchaser receives an extended payment term through the finetrader and can secure their liquidity. At the same time, the provider pays the goods to the supplier immediately, which preserves their liquid funds.

Better purchase prices: The use of cash discounts brings companies favourable rebates from suppliers, which often offset the finetrader's fees.

Extended payment terms: As a rule, companies receive a payment term of 120 days from the finetrading provider. Some finetraders even allow payment terms of up to 180 days. As a result, companies often only have to pay when they are already benefiting from the delivered goods.

Independence: Potential dependencies on the house bank can be reduced, as goods procurement financing relieves the credit line at the house bank. The negotiating position with banks and other financial service providers improves due to increasing liquidity.

The Disadvantages of Finetrading

Not suitable for every company: This financing option is primarily available to companies with solid creditworthiness. Companies in crisis, young or indebted firms, and those from risky industries are often unable to conclude a framework agreement with finetrading providers.

Technical hurdles: To use finetrading effectively, specialised software is often needed to process a large number of work steps automatically.

Not always cheaper: For companies without an optimal credit rating, the required deferral fee is often higher. Furthermore, while finetrading can be profitable with prompt repayment, if companies regularly make full use of the finetrader's payment terms, costs can quickly accumulate that exceed those of other financing options. If entrepreneurs know they will always maximise these time windows, taking out a business loan may be more advisable. Teylor's experts are happy to help find suitable alternatives.