The High Seas of Trade Finance

In mid-2006, a customer of Telamon discussed a dilemma it was experiencing. Telamon Corporation is a $300 million, Indianapolis-based service provider to the telecommunications and automotive industries.

The customer was a large, North America-based supplier to the automotive industry that faced a challenge with a Brazilian vendor of engine blocks. The Brazilian company was having difficulty in financing its transactions with the auto supplier, as the goods often were in transit for at least 45 days, and its funds were tied up until the American company took possession. "The American company wanted to find a third party to help ease the burden on the Brazilian supplier," says Stanley Chen, general manager with Telamon.

The automotive supplier wanted to continue working with the Brazilian manufacturer yet preferred not to take ownership of the goods earlier. At the same time, the Brazilian firm wanted to continue its relationship with the auto supplier yet free up its money more quickly.

Here's what ended up happening: Telamon, which often purchases inventory on behalf of its clients, uses a line of credit from its bank, LaSalle, to buy the engine blocks once they leave the factory in Brazil. Once the goods reach the U.S., Telamon sells them to the auto supplier on behalf of the Brazilian supplier, while also selling the accounts receivable to ABN AMRO, LaSalle's parent company. Telamon uses that money to pay off the credit line from LaSalle.