The Red Sea crisis was one of the big disruptions to supply chains over the past year.
Geopolitical tensions made it risky for ships to travel along the Red Sea, through which 12 percent of global trade passes. Instead, cargo ships rerouted, travelling around the Cape of Good Hope in Africa, which created longer transit times, shipping delays and heftier freight costs. Some retailers took the cue of the uncertain times to stock up on inventory, expending cash and taking up warehouse space for their preemptive purchases.
The Red Sea is a conduit that connects trade between Asia and Europe, and buyers and sellers transacting internationally were some of those to directly feel the impact of the unsettled waters.
Under normal circumstances, ninety percent of global trade relies on trade finance. When shipping pressures increase, trade finance can be extra valuable for exporters and importers engaged in cross-border sales and purchases.
Reliable Trade Finance for 25 Years
Tradewind Finance is a financial services firm that specializes in trade finance solutions used to accelerate cash flow, reduce trade risk, and unlock growth potential. One trade finance product is factoring, which has been an effective tool to manage cash flow during the Red Sea crisis.
Here’s how factoring works:
Companies can sell their invoices to Tradewind, and in exchange, Tradewind provides them with cash up front, speeding up the payment process.
The seller receives up to 90% of the invoice amount within 48 hours of their invoices being verified. When the invoice reaches its due date, the buyer makes the payment to Tradewind, and Tradewind then releases the remaining balance to the seller.
This process essentially allows sellers to be paid right away, rather than waiting months.
Flexibility at our core
During the Covid-19 pandemic, Tradewind, backed by their rock-solid bank partnerships, assured their clients that they could finance the longer payment terms that came about with the unprecedented times.
This same flexible approach to financing has been used during the Red Sea crisis. Given the shipping delays that ensued, some buyers requested longer payment terms with their suppliers in the face of these setbacks.
One of Tradewind’s clients in the aluminum industry faced this challenge and requested Tradewind to finance their sales on 90-day credit terms, an extension from the previously agreed 60-day terms with their European buyer.
Tradewind delivered. Through Tradewind’s tailor-made solution, the seller (Tradewind’s client) received payment upfront, and the buyer could enjoy longer windows until payment was due. The solution optimized cash flow for both the seller and the buyer, benefiting each side of the transaction. The additional liquidity allowed the client to stay competitive even amid supply chain issues.
Factoring also includes credit protection and collection services in overseas markets, which were helpful assets offering security of payment and protection against other trade uncertainties brought on by the Red Sea crisis.
