Export factoring works on the same principle as factoring, with an international aspect added to the purchase and funding of factored receivables. A company supplying goods or services to foreign buyers can sell its receivables at a discount price to a an export factor who will in turn assign the accounts receivable to an import factor in the foreign buyer’s country. The company then receives between 70 and 90% of the receivable from the export factor, while the import factor’s responsibility is to collect the debt with the foreign buyer and remit it to the export factor.
If the receivable is not paid within 90 days after maturity, for example because of the buyer’s insolvency, then it is paid by the import factor up to a certain agreed limit. Therefore, the export factor’s client is always sure to get paid. Moreover, export factoring is the perfect way for small businesses which frequently perform overseas transactions to benefit from sufficient amounts of operating capital without having to wait for their invoices to be cleared.
Another way to avoid the risk of non-payment is to subscribe to an export factoring contract with insurance. In that case, if the foreign buyer fails to honour its debt, the export factor reports the event to an insurance company. That way, both factor and borrower are protected. Risk protection is usually high, and funds are processed quickly, often within 24 hours. Factoring is an advance on funds, not a loan, which means it doesn’t increase the company’s external sources.
- Why turn to a factor rather than seek a bank loan?
- How does a factoring finance arrangement work?
- Who collects the debt due, the factor or my business?
- What's the difference between factoring with recourse and factoring without recourse?
- Does factoring require a minimum number of invoices?
- What does a factoring company do in the case of nonpayment?
- Do my customers know of the factor’s involvement?
- What are the requirements for invoice discounting?
- Is there any collateral requirement for factoring?
- How quickly can I access cash for the invoices I sell to a factor?
- Who do I turn to if I have a dispute with my factoring company?
- I have overseas clients; can I factor international invoices?
- Is it easy to terminate a factoring arrangement?
- What regulations apply to factoring companies?
- What does working capital mean to your business?
- What is the difference between factoring and bill discounting?
- What is credit insurance?
- What is the difference between invoice factoring and merchant cash advance?
- What is the difference between factoring and securitisation?