Finland is an import-dependent economy. According to Finnish Customs statistics, Finland's goods imports totalled EUR 73 billion in 2024. Import businesses bring in raw materials, components, consumer goods, and technology – but they also bear significant financing risk. Capital is tied up in imported goods for weeks or months before it generates revenue.
Import Cash Flow Challenges
The import cash flow challenge is multi-layered and begins at the order stage. The foreign supplier requires advance payment, goods transport takes weeks, customs and VAT must be paid when goods arrive, and ultimately the domestic customer buys the product on extended payment terms. This chain ties up capital for up to 3–6 months.
As an entrepreneur, I have seen how this long cash flow cycle challenges small import businesses in particular. One of our clients described: 'When I order a container of goods from China, I pay 30% on order, the remaining 70% before loading. The goods arrive 6 weeks later, and then I pay customs VAT. The first customer pays 2 months later. My money is tied up in the process for half a year.'
Stages of the import cash flow cycle:
- Order: Advance payment to supplier (30–100% of order value)
- Production: Supplier manufactures or assembles the order (1–8 weeks)
- Transport: Sea freight 4–8 weeks, air freight 1–2 weeks
- Customs clearance: Customs VAT and any duties paid immediately (24% + possible duty)
- Warehousing: Goods are unloaded and stored (1–7 days)
- Sales and invoicing: Goods are sold and the customer is invoiced
- Cash flow: Customer pays on 30–60 day terms
- Total cycle: 3–6 months from order to cash
Example: EUR 100,000 import shipment from China. Advance payment 30% = EUR 30,000. Final payment before loading 70% = EUR 70,000. Freight and customs clearance = EUR 8,000. Customs VAT 24% = EUR 24,000. Total cash outflow of EUR 132,000 before a single euro returns.
The Cash Flow Impact of Customs VAT
Customs VAT is one of the biggest cash flow challenges in importing. When goods arrive in Finland from outside the EU, customs VAT (24%) must be paid before goods are released from customs. This means an additional EUR 24,000 on a EUR 100,000 shipment must be paid immediately – even though the goods may not sell for months.
From 2025 onwards, import VAT is declared and deducted on the periodic tax return, significantly easing cash flow. Previously, VAT had to be paid during customs clearance and deducted separately. The new system means there is no longer a cash flow delay from VAT – the declaration and deduction happen in the same periodic tax return.
Financing Solutions for Imports
There are several specialised financing instruments for imports, designed specifically for international trade needs. Knowing these is essential for any import entrepreneur.
Letter of Credit
A letter of credit is a bank-issued payment guarantee that protects both the buyer and seller in international trade. The buyer's bank commits to paying the seller when the seller proves the goods have been shipped in accordance with the contract terms. Letters of credit are especially useful when buyer and seller do not know each other well.
Benefits of a letter of credit in importing:
- Protects the buyer: payment occurs only when goods are verifiably shipped
- Protects the seller: bank guarantees payment, seller is not dependent on buyer's ability to pay
- Enables trade with unknown suppliers
- Can include a financing element: e.g. 90-day payment terms after the LC
- Cost typically 0.5–2% of the trade value
Import Financing
Tailored financing solutions for import businesses – from letters of credit to invoice financing
Supply Chain Finance
Supply chain finance is an arrangement where a finance company pays the supplier's invoices quickly and the buyer pays the finance company on extended terms. This benefits both parties: the supplier gets paid immediately, the buyer gets longer payment terms.
In importing, supply chain finance is especially useful for large and recurring orders. When the supplier relationship is established and volume is predictable, the finance company can offer favourable terms.
Invoice Financing for Domestic Resale
An import business's domestic resale often takes place with extended payment terms. Invoice financing frees these domestic receivables into working capital that can be used for the next import shipment. This creates an efficient cycle: imported goods are sold, the invoice is financed immediately, and the freed capital is used for the next order.
Currency Risk Management
Currency risk is one of the largest financial risks in importing. When you buy goods in US dollars, Chinese yuan, or British pounds, exchange rate changes can turn a profitable deal into a loss. According to the Bank of Finland, euro exchange rate fluctuations have increased currency risk for import businesses.
Currency risk hedging methods:
- Forward contract: Lock in the exchange rate in advance for a specific date. The most popular and simplest method.
- Currency option: Buy the right (not obligation) to exchange currency at a specific rate. More expensive but more flexible.
- Natural hedging: If you have both imports and exports in the same currency, risks offset each other.
- Currency account: Maintain an account in the import currency and buy currency when the rate is favourable.
- Pricing hedge: Add a currency clause to contracts that transfers the exchange rate risk to the customer.
Example of currency risk: You order USD 100,000 of goods at an exchange rate of 1.10 EUR/USD = EUR 90,909. If the rate drops to 1.05 at the time of payment, the cost is EUR 95,238 – a difference of EUR 4,329. A forward contract would have locked in the rate in advance.
Practical Tips for Import Entrepreneurs
Best practices for managing import cash flow:
- Negotiate payment terms and methods carefully with suppliers – reducing advance payments frees capital
- Use letters of credit with new or unknown suppliers – protects the trade
- Hedge currency risk with forward contracts whenever trade is outside the EU
- Take advantage of the customs VAT periodic tax return procedure – deduct VAT in the same return
- Finance domestic resale invoices with invoice financing – free up capital for the next purchases
- Create a cash flow forecast that accounts for lead times, payment terms, and exchange rates
- Have a contingency plan: what if a delivery is late or a customer does not pay?
"In importing, cash flow management is like a chess board – you need to think several moves ahead. A letter of credit protects supplier trade, invoice financing frees up resale cash flow, and forward contracts lock exchange rates. Together they create a managed whole."
Summary
Import financing is complex but manageable with the right instruments. Letters of credit protect supplier trade, supply chain finance extends payment terms, invoice financing frees up domestic resale cash flow, and forward contracts hedge currency risk. The customs VAT periodic tax return procedure significantly eases cash flow. Together these form a comprehensive solution for managing import business cash flow effectively.
📌 Summary
The import cash flow cycle is 3–6 months from order to cash. Letters of credit protect trade (cost 0.5–2%), supply chain finance extends payment terms, invoice financing frees domestic receivables. Currency risk must be hedged with forward contracts for non-EU trades. The customs VAT periodic tax return procedure eliminates a significant cash flow delay.
Supply Chain Finance
Guide to leveraging supply chain finance – optimise cash flow across the entire procurement chain
Currency Risk Management
Guide to hedging currency risk – forwards, options, and practical strategies
