Trade Gap is Up - Good for PO Financers?

A recent article mentioned how the trade gap has ballooned. There are many reasons for the increase, but a large part of it has to do with the price of oil.

Most purchase order financing companies make their living financing import companies. So, one could argue that a trade deficit will have a positive effect in the industry. I'll repeat though - I am not saying trade deficits are good. Actually, most people agree that a trade deficit is not a good thing, especially in the long term.

But there is a catch though. Oil, the product that happens to be driving a large part of the imbalance, is not the type of product that is financed with purchase order funding very easily. There are a few reasons for this. In no particular order, they are:

1. Transaction profit margins
2. Volumes
3. Involved parties

Most will agree that while oil trading transactions have substantial volumes, they have very low margins. It is a commodity after all. That in itself, usually kills the chances of using purchase order financing. We'll talk about the other items, some other time.

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