Paying for stock months before you sell it: how importers fund the gap

There is a particular kind of month that only happens in a stock business. Nothing has gone wrong. Sales are steady, the team is fine, the product is selling as well as it ever has. And yet the bank balance is the lowest it has been all year, because six weeks ago you paid a supplier for goods that are currently in a steel box on a ship, and the customers who will eventually pay for them have not seen them yet.

That gap — money out, goods in transit, money back in — is the largest single funding requirement most importers, wholesalers and stock-heavy retailers have. It is also the one they are least likely to have arranged any finance for. Instead it gets funded out of the current account and a bit of nerve, and usually the timing works. The year it does not is the year a perfectly profitable business runs out of cash.

Work out the gap in days before you go looking for money

Before you can sensibly ask anyone for funding, you need one number: how many days your cash is out of the business, end to end. Not the payment terms, not the lead time — the whole cycle, from the day the deposit leaves to the day the last customer pays.

Take a business ordering £24,000 of goods from an overseas supplier. The supplier wants 30% up front, so £7,200 leaves on day one. The balance of £16,800 is due before the goods ship, which happens on day 28. Manufacturing and sailing take the stock to day 70 before it lands in the warehouse. It then sells through over about eight weeks, and because half of it goes to trade customers on 30-day terms, the final payments land around day 155.

So this business is funding an average of roughly £20,000 for five months on every cycle. Run three overlapping cycles a year and the amount tied up at any given moment is considerably more than the value of a single order — which is precisely why the owner feels poor in a year the accounts say was good. That is the working capital gap, and it is the number a lender will ask about in the first ten minutes. How much funding do you actually need? runs the same calculation for a business without stock.

The cheapest money in the room belongs to your supplier

Before borrowing, go back to the supplier. Trade credit is the only funding in this list with no arrangement fee, no personal guarantee and no application form, and small movements in terms are worth more than most owners expect. Moving a 30% deposit to 20%, or the balance from 'before shipment' to '30 days after the bill of lading', can take four or five weeks of cash out of the cycle on its own.

Suppliers say yes more often on a second or third order than a first, and more often when you ask for a specific change than when you ask vaguely for 'better terms'. The one thing to watch is that credit is sometimes priced into the unit cost, so ask what the price would be for payment in full up front. If the discount for paying early is large, the credit is not free and you can compare it properly against a facility.

Before you borrow money to pay a supplier faster, find out what paying them slower would cost. Quite often the answer is nothing.

The four facilities that actually exist

**An import or trade loan** is the workhorse. The lender pays your supplier directly, and you repay once the goods are sold, typically 60 to 150 days later. It is usually revolving, so the facility refills as you repay, and it is priced as a fee per drawdown plus interest for the days you hold the money.

**A letter of credit** is not funding at all, which trips people up. It is a bank's promise to pay your supplier when they present the correct shipping documents. It solves the trust problem with a new overseas supplier who does not want to ship to a company they have never dealt with, and it frequently unlocks better terms as a result. It costs an issuance fee and normally requires either security or cash cover, so treat it as a trust instrument rather than a cash-flow one.

**Stock or inventory finance** lends against goods that have already landed and are sitting in your warehouse. It is harder to get at small scale, because the lender is taking security over something that may be worth very little if it has to sell it in a hurry, and it needs stock records good enough to audit.

**Invoice finance** works on the other end of the cycle, releasing cash against sales invoices you have already raised. It does nothing for the front half of the gap but can remove most of the back half. Invoice finance still has a stigma it doesn't deserve covers how it actually works in practice. Most small importers end up with some blend: supplier credit at the front, a revolving trade facility through the middle, invoice finance at the back.

Price it in days, not in fees

Trade facilities are quoted as a percentage per drawdown, which makes them look cheap and makes them impossible to compare with a loan quoted as an annual rate. Convert everything into the same unit before deciding.

A 1.5% fee on a £20,000 drawdown is £300. Hold that money for 90 days and you have paid £300 to use £20,000 for a quarter of a year, which annualises to about 6%. Hold it for 45 days and the same £300 annualises to roughly 12%. The fee has not changed at all; only the number of days has. Short, fast cycles make per-cycle pricing expensive, and that is the calculation most people never do. Flat rate, APR or factor rate goes through the same conversion for term loans.

For context, the Bank of England held base rate at 3.75% at its meeting on 30 July 2026, so a 6% annualised cost of stock finance is roughly two points of genuine margin above the underlying cost of money — that spread is what you are paying for speed and for the lender taking goods-in-transit risk.

Then set the cost against the profit on the order rather than against the order value. If that £24,000 shipment produces £9,000 of gross profit, £300 of finance is 3% of the profit and nobody should lose sleep. If it produces £1,800 because you are shifting volume on thin margins, the finance is eating a sixth of the profit before anything goes wrong, and one delayed sailing turns the deal negative.

Two levers that cost nothing at all

Postponed VAT accounting is the first, and it is free money in cash-flow terms. If you are VAT registered you can account for import VAT on your VAT return instead of paying it at the border and reclaiming it months later. You declare it and reclaim it on the same return, so for a fully taxable business the two entries cancel out and no cash leaves at all. There is no application process — you or your freight agent elect to use it on the customs declaration, and you download the monthly postponed import VAT statement from your customs account to get the figures. On a £24,000 shipment carrying standard-rate VAT, that is £4,800 that never has to leave the bank and be chased back.

The second is a duty deferment account. Customs duty is separate from VAT and postponed accounting does not touch it, so without a deferment account duty is payable before the goods are released. A duty deferment account with HMRC lets you settle a whole month's duty by direct debit on the 15th of the following month instead, which turns a stream of shipment-by-shipment payments into one predictable monthly one and buys you a few weeks of float on every consignment.

The decision rule

Borrowing to buy stock is sensible when three things are true at once: the goods have either a confirmed buyer or a sell-through history you trust, the gross margin covers the finance cost several times over, and you would survive the shipment landing late, short or damaged. If any one of those is shaky, the honest answer is to order less rather than borrow more.

And read the security clause before the rate. Trade facilities for small limited companies almost always come with a personal guarantee from the directors, which means an order that goes wrong stops being a company problem. Personal guarantees on business loans sets out what you are actually signing.

The businesses that handle this well are rarely the ones with the cleverest facility. They are the ones who know their gap in days, who ask the supplier for terms before they ask a lender for money, and who never let a single order grow big enough that being wrong about it would finish them.

Common questions

What is the difference between trade finance and invoice finance?

They fund opposite ends of the same cycle. Trade or import finance pays your supplier, so it covers the period from placing the order to selling the goods — money going out before anything has been sold. Invoice finance advances cash against sales invoices you have already raised, so it covers the period between delivering to a customer and being paid. A business importing stock and selling on 30-day terms often needs both, because supplier payment and customer payment can be four or five months apart. If you only have one facility, put it where your gap is longest.

Do I need a letter of credit for a new overseas supplier?

Not always, and it is worth understanding what it does before paying for one. A letter of credit is a bank's undertaking to pay the supplier once they present the shipping documents specified in it, which removes the supplier's risk of shipping to a buyer they do not know. It costs an issuance fee and usually needs security or cash cover, so it is expensive for small, regular orders. For a first large order with an unfamiliar supplier it can be the thing that gets you better payment terms, and those terms may be worth more than the fee costs.

Does postponed VAT accounting cover customs duty too?

No. Postponed VAT accounting applies only to import VAT, letting a VAT-registered business declare and reclaim it on the same return so no cash leaves at the border. Customs duty is a separate charge and is not deferrable that way. To spread duty you need a duty deferment account with HMRC, which collects a month's duty by direct debit on the 15th of the following month. Many small importers use both: postponed VAT accounting for the VAT, a deferment account for the duty. Your freight forwarder can operate the declaration side, but the deferment account is set up in your own name.

How much stock funding will a lender give a small business?

Less than most owners hope, and the limit is usually set by your trading history rather than by the value of the order. Lenders size a trade facility on demonstrated sell-through — how reliably you have converted previous shipments into paid sales — plus the quality of your management accounts and the concentration of your customer base. A first facility is often a fraction of what you asked for, deliberately, with the expectation it grows as you use and repay it. Directors of small limited companies should expect a personal guarantee on top.