UPS Capital, the financial services affiliate of the international shipping company UPS, says it is offering a way that is easier and more efficient than letters of credit (L/Cs) for US small companies to finance their trade transactions with international suppliers.

According to the New York listed affiliate, the new service called UPS Capital Cargo Finance enables small US importers to use their in-transit UPS shipments as collateral for loans, thus reducing the need for small firms to rely on L/Cs to finance international trade transactions, they say.

How it works

The new service begins when a US importer places an order for goods with an international supplier.

Once the supplier fulfils the order and the bill of lading covering the goods is in UPS's possession, the importer pays 50 per cent of the cost to UPS Capital, which then pays 100 per cent of the cost of the goods to the international supplier.

The US importer then pays back UPS Capital according to the terms of the loan, usually within 60 days.

Advantages

UPS Capital reckons most global trade transactions for small companies are financed by L/Cs or cash in advance, with trading on open account terms typically available only to large companies.

While conceding L/Cs are effective, UPS Capital argues that they are time-intensive and costly, while cash-in-advance transactions can strain cash flow for small companies.

UPS Capital Cargo Finance is designed for US companies with annual revenues up to US$50 million that import between one and ten ocean or air freight containers of goods per month.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.