Export factoring, also known as cross-border factoring, is a process used by exporting companies to convert credit sales into cash.

It can be used in any country that has laws that support the buying and selling of receivables.

A third party, usually a large international bank or specialised financial firm, buys the foreign account receivables of a company and advances the company a percentage – usually around 80% – of the invoice immediately. The remaining amount, less fees and interest, is paid when the overseas client pays the invoice in full. The third party also assumes responsibility for credit protection, bookkeeping and collection services.

The exporter may receive an order from overseas and be unsure about the reliability of the client, or be experiencing pressure on its cash flow. By using export factoring, the exporter outsources overseas credit checking and debt chasing liabilities, which is advantageous as the export factoring company has greater financial and research resources with which to check the customer’s local credit rating. As everything is carried out locally, it avoids potential difficulties and administration costs often associated with overseas transactions.

Factoring foreign account receivables can be a viable alternative to long-term bank financing, export credit insurance, expensive short-term bridging loans and other types of borrowing.

Export factoring is ideal for established exporters who want the flexibility of selling on open account terms, avoid incurring any credit losses, and outsourcing collection and credit functions. The risks usually associated with foreign sales are virtually eliminated.