Export Factoring

As the global economy is becoming even more competitive, companies are finding that they must be more flexible with customers to maintain sales and growth. Export Factoring involves the collection of debts by a Factoring company on behalf of an exporter often in the debtor’s language and currency.

The ability to be able to provide international customers with favourable credit terms is now an important part of any buyer and seller relationship. But selling into new geographies to unknown Companies involves elements of uncertainty and higher perceived risk. Credit risk becomes more of an obstacle to doing business.

Exporters often consider selling on open account as the last resort, sales considerations are often replaced with worries about what will happen if it all goes horribly wrong and the customer will not pay. Collecting from foreign debtors is every bit as difficult as you can imagine it to be. More challenges will probably appear, as customers prefer to trade in local currencies.

The good news is there is an alternative to Letters of Credit, Bank Guarantees or cash in advance called International or Export Factoring. Export Factoring is a very widely used service throughout Europe and the World. It is one of the oldest financial service products in existence.

The first documented use of Export Factoring is said to have occurred in America some time before the American Civil War, when animal furs, cotton, and even materials such as timber were shipped from the colonies to Europe using intermediaries or Factoring Companies. Owing to the slow communication and transport of these times, to sell in another territory it was a necessity to appoint an agent in the territory to find the customers, sell and deliver the goods for the principal and hold the principal’s goods on consignment. This was the beginning of Export Factoring and as we know it today. However, some say it dates back as far as the fifteenth century.

International Factoring – Global Networks Of Export Factoring Companies

Whether your business is a recent start-up or an export industry veteran, you are bound to experience financial strains or collection issues cause by exporting at one time or another. When you encounter cash flow obstacles, Export Factoring is here help to assist you with fast simple solutions.

Export Factoring is very similar in operation to Domestic Factoring. It can be either purchased as a stand-alone facility or as part of a Domestic Factoring facility. It is usually used for Exporters who want to export on short-term, generally 120 days or less open account terms.

The Factoring Company will manage the credit control and collections of invoices either by a multilingual collections team or by contracting with other Factoring Companies domiciled in the country were collection is taking place to collect the debt on their behalf. Either way you have full power of control through the collections process. Just like Domestic Factoring the Factoring Company will provide sales ledger reports on a regular basis to keep you informed. The benefits of the Factoring Company performing the collections are obvious, they speak the local language, understand the local business & legal environments/systems and work within the local time zone.

Export Factors can also provide bad debt protection on debtors. An Exporter receiving a new order from a new customer can request a credit limit from their Factoring Company. Once the new customer is approved and a credit limit established the Exporter could fulfil the order knowing that providing the order is correctly completed payment is guaranteed by the Export Factor.

The Exporter will have the ability to draw down up to 90% of the invoice value immediately.

Global networks of Export Factoring Companies are flourishing, although Export Factoring is not new, it has become more visible in recent years. Export Factoring is as if the Exporter has an overseas financial representative based in the customer country. This means that the seller can do business abroad as if the customer was based in the next town.

Export Factoring Is Great For New Exporters – Export Factoring Helps You Minimise The Risk

  • Up to 100% guarantee of the importer’s credit risk. Protect against short term disruptions to cash flow
  • Pre-Delivery guarantee
  • Export Factors generally will not take on a client for a one-time deal
  • Factors generally do not work with receivables having greater than 180-day terms
  • Factors do not work with developing countries, because of their inadequate legal and financial frameworks
  • Factoring allows the export buyer to purchase on open account terms, which does not tie up existing credit lines for either the Importer or the Exporter
  • By providing a means of turning receivables into cash, Export Factors eliminates the cost of collections and the risk of bad debts for the exporter