A charger programme lost a season because the buyer’s credit line was exhausted in the month the tooling invoice fell due. The order was placed, the samples approved and the production slot booked; the funding was not. Trade finance is arranged before the order rather than after it, and the instruments are chosen in a sequence rather than as a single decision.
Trade finance for charger programmes: the sequence
Three options, taken in order.
Supplier credit first, because it is the cheapest funding available and it is already inside the quotation; bank instruments second, because they move risk rather than money; and receivables finance third, because it converts a completed shipment into cash. A programme that reaches for the third option first pays for it.
The order that ran out of funding
The shortfall was in the timing rather than the total.
The tooling invoice and the deposit on the first production run fell in the same month, and the buyer’s facility covered each of them on its own. The instruments that would have smoothed the month, a longer deposit period or a bank undertaking, were not in place, because they are arranged before a purchase order rather than after it.
Option one: supplier credit
It is already in the price, and it is limited.
A supplier that accepts a balance against documents is funding the programme between the material purchase and the payment. That funding is priced into the quotation, so it is rarely free, and it is bounded by the supplier’s own working capital rather than by the buyer’s request.
Option two: bank instruments
A credit or a guarantee replaces one party’s risk with a bank’s.
Both carry a fee and both require the buyer to hold a facility. They are used where the value is large relative to the relationship, or where a supplier’s own bank requires an undertaking before releasing production capacity.
Option three: receivables finance
It funds a shipment that has already happened.
Once the transport document and the invoice exist, a financier can advance against them. The cost is a discount rate rather than a fee, and it is usually the most expensive of the three, which is why it is used to bridge a gap rather than to fund a programme.
| Option | Who funds | Cost form | Best used for |
|---|---|---|---|
| Supplier credit | The factory | Inside the unit price | Repeat orders with a history |
| Documentary credit | Both banks | A fee at each end | First orders and larger values |
| Receivables finance | A financier | A discount rate | Bridging a completed shipment |
| Buyer facility | The buyer’s bank | Interest and commitment fee | Smoothing several orders |
What a lender asks for
Four items, and the third is specific to traded goods.
The purchase order or contract, the supplier’s standing and history, the shipment documents for the goods being financed, and the buyer’s own accounts. A lender financing a charger shipment wants to see a transport document rather than a production plan.
Where a charger programme differs
Three features change how the funding is structured.
The tooling spend is up front and not reusable, the unit value is low relative to the freight, and the production lead time is measured in weeks rather than months. Together they mean the funding need is front-loaded and short, which favours a facility that can be drawn and repaid within a quarter.
How to sequence the options
Three steps, and the first is a conversation rather than an application.
Ask the supplier what funding is already inside the quotation; decide whether the remaining gap needs risk transfer or cash; and only then approach a bank for the instrument that matches. A programme that starts at the bank usually pays for funding it already had.
How the three options are combined
The options are used together rather than chosen between. A programme typically runs on supplier credit for routine orders, uses a bank instrument where a first order or a large value needs the risk moved, and reaches for receivables finance only where a shipment has completed and the cash is needed earlier than the payment term allows.
The combination changes with the order book. A quarter with two large orders may need the facility even where the routine orders are comfortably funded, because the two deposits fall in the same month.
The second consideration is the cost of each instrument against the period it covers. A bank fee is paid once per shipment, a discount rate accrues by the day, and supplier credit is already inside the unit price, so the three are not interchangeable.
A programme that maps its order book against the funding options a quarter ahead spends less than one that reacts when an invoice falls due.
FAQ
Is supplier credit really free?
It is not free, it is embedded. A supplier funding a balance period carries a cost that appears in the unit price, so the funding is being paid for whether or not it is named. Ask the supplier to show the financing as a line where it is priced, because a cost carried inside the unit price is paid on every order rather than once.
When should the facility be arranged?
Before the purchase order rather than after it. Facilities take time to approve, and the month an order is placed is usually too late to add one. Start the application a quarter before the order, because approval, documentation and the facility agreement each take time and none of them can be compressed at the point of payment. The facility also takes time to document once it is approved.
Does a documentary credit count as trade finance?
It is a risk instrument rather than a funding one. It moves the payment risk to banks, and the buyer still has to fund the payment when the documents are presented. Use it where the shipment has to be governed by documents, and use a funding instrument where the gap is cash rather than risk. The two solve different problems and are priced differently.
Can receivables finance be used on a first order?
It can, where the transport document exists and the buyer is acceptable to the financier. The cost is usually higher than the other options, which suits a one-off gap rather than a routine. It suits a completed shipment whose payment term is long, and it is priced accordingly, which is why it is used to bridge a gap rather than to fund a programme.
Next step
Send the order value, the payment structure and the timing to Wecent Group through the contact page. The reply sets out the terms the factory can carry and the documents a facility would need. Related reading: OEM and ODM charger manufacturing, wholesale chargers and inside the charger factory. External references: ICC business solutions for trade, Bank for International Settlements, World Bank, European Banking Authority, European Central Bank and ITC Trade Map.
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