UPS Capital, the financial services arm of UPS, is offering an easier and more efficient way forsmall companies to finance their trade transactions with international suppliers.
UPS Capital Cargo Finance enables small US importers to use their in-transit UPS shipments ascollateral for loans, reducing the need to rely on paper-intensive letters of credit to financeinternational trade transactions. The new service is designed for US companies with annual revenuesup to $50 million (€ 35 million) that import 1-10 ocean or air freight containers of goods permonth.
The program eliminates the need for importers to obtain letters of credit or exhaust cash flowswith upfront payments to finance transactions. Under the program, the importer pays 50% of the billof lading to UPS Capital which then will pay 100% of the bill. The US importer then repays UPSCapital according to the terms of the loan, typically within 60 days, UPS said in a release.
“Because UPS manages the shipment of the goods and provides visibility, UPS Capital is able todo something banks and other financial services companies may not be willing to do, providefinancing earlier in the transaction,” said Robert J. Bernabucci, President of UPS Capital. “Notonly are payments to suppliers accelerated, but transit times for the receipt of goods also may beimproved. The true value of an efficient supply chain can only be realised when the physicalmovement of goods is married with the efficient funding of those goods.”
Most global trade transactions for small companies are financed via letters of credit or cash inadvance, with trading on open account terms typically available only to large companies. Whileeffective, letters of credit are time-intensive and costly. Cash-in-advance transactions can straincash flow for small companies. Traditional financial service companies may be hesitant to lendagainst goods that are in-transit or housed in a foreign location, leaving few options for smallbusinesses that want to participate in global trade.
Additionally, after the dramatic slowdown in the US economy, small companies are under pressureand due to the credit crunch they also face it difficult to receive financial loans from banks.With the new service UPS offers a solution using shipments as financial security which also securesthe company’s business from SMEs.
