Trade Finance, Where Is The Risk For The Financier?
In both Trade and Debtor Finance there can be potential risk for the financier.
Here are 2 ways a financier can lose money:
1. The client witholds valuable information; and/or
2. The manufacturer knowingly ships faulty goods.
The following case study is an example of how risk can indeed become a reality.
Client: Electrical Wholesaler. A well known retailer was their customer.
Why they required our help: To finance the production of goods (including shipping and import costs).
Problem: The manufacturer and our client were aware the goods were faulty. The financier was deceived into financing the production costs. Goods were delivered into the customer’s store. Subsequently, almost all products were returned as being defective.
Trade Financiers rely on invoice factoring to payback their facilities. In this situation the invoices were never paid. This means that the financier would have lost their money.