If You Have Exported Your Goods On Credit, Then Your Local Export Factoring Company Will" Buy" Your Receivables Off You After You Have Dispatched The Goods To Your Customer

Category: Finance.

If you are an exporter of goods to other countries, then at some time or the other, you must have faced a cash crunch and wished that you had ready cash in hand, instead of having to wait for your customer s payments to arrive. Here s how.

Well, you now have a way of getting ready cash against your international invoices. Due to heavy competition, you could have been forced to offer credit to your customers. They will send these receivables to an import factoring company situated in the same country as your customer, who will then do the follow up in getting your payment released on the due date. If you have exported your goods on credit, then your local export factoring company will" buy" your receivables off you after you have dispatched the goods to your customer. So, in international factoring, two factoring companies are normally involved. The balance will be transferred to your account, once your customer has released the payment on the due date.

You will get around 90% of your invoice amount immediately within a few days, which will be wired to your account by your factoring company. This last payment will be minus the factoring company s charges for providing you this service, which is normally 5% to 4% of the total invoice value. These factoring companies can also take care of your collection of payments from your customers. This percentage of charges will depend on the credit period you have given to your customer, the credit rating of your customer as decided by your factoring company, and the total amount of business, which you provide, value wise to your factoring company. This can be a boon for you, since you can now concentrate more on sales rather than worry about collections. The advantages of international factoring are that your cash flow improves immediately, enabling you to pay off immediate expenses like staff salaries, etc and also, bulk purchases eliminates the need to maintain an international collection department.

The factoring company will send you regular updates of the receivable reports of your customers, enabling you to have an accurate status of your financial side of your business. This facility also gives you a chance to expand your business by taking on more exports to different countries, where your factoring company has tie- ups. You would have to pay interest on that loan in any case. This facility is also convenient rather than taking a bank loan, which would normally require guarantors, collateral and intensive documentation. International factoring is more like an extension of your current business, as it takes care of your payment collection as well as provides you with ready cash. There should also, not be any quality problems with regards the goods, which you have exported. You should note that these services of an international factoring company are slightly expensive, since two factoring companies are involved.

You will also have to commit a minimum amount of business to your factoring company. Your factoring company might also ask for collateral from your customers as a guarantee against bad debt, which your customers might be averse to giving. Since your factoring company might take over your collections side and even take care of your bad debts, there could be some friction between you and your customers. So, after studying the above points, you too can go in for international factoring of your invoices, to put your business on the fast track.

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