Import finance is a financing facility used by businesses to raise capital for buying goods from suppliers in another country. The funds are used to purchase raw materials, machinery, equipment, workforce, inventions, and even imported products.
Import finance helps businesses to stabilize financially and cover the production cost of goods without depleting their cash reserves. Most commonly, they apply for credit when a company is short on funds to pay an overseas supplier. However, what the financing covers depends on the arrangement with the lender.
How It Works:
- The importer places an order.
- A lender provides financing support.
- Payment is made to the supplier.
- Goods are shipped and received.
- The importer repays the lender as per agreed terms.
Benefits:
- Improves working capital
- Enables timely procurement
- Supports business growth
- Reduces cash flow pressure
Example:
XYZ company purchases machinery worth Rs 10 lakh from a supplier in Germany. The company will receive an import invoice from the supplier in a legal format, having all the details about the trade.