Export Factoring applies to businesses engaged in the international market. It facilitates the selling process since the Factor covers 100% of the credit risk of sales (protection against the importer’s inability to pay), collect money owed from abroad by approaching importers in their countries, in their language and in locally accepted manner. As a result, distances and cultural differences cease to be a problem. Further more, with the assignment of the receivables the Factor, upon request from the seller, makes advance payments in a percentage that is depending on the nature of the product, the commercial conditions which link the Seller and the Buyer, their creditworthiness, the number of debtors/buyers assigned to the Factor, the amount of credit notes on sales etc.
- The export factor chooses an FCI correspondent to serve as an import factor in the country where goods are to be shipped or services to be provided.
- The import factor investigates the credit standing of the buyer for the exporter’s goods or services and establishes lines of credit. This allows the buyer/s to place an order on open account terms without opening letters of credit or letter of guarantee.
- The exporter signs a factoring contract assigning all agreed receivables to an export factor. The factor then becomes responsible for all aspects of the factoring operation. The trade receivables are then assigned to the import factor.
- Once the goods have been shipped, the export factor may pay in advance up to a percentage the invoice/s value to the exporter.
- Once the sale has taken place, the import factor collects the full invoice/s value at maturity and is responsible for the swift transmission to the export factor that then pays the exporter the outstanding balance.
- If after 90 days past due date an approved invoice remains unpaid, the import factor will pay 100% of the invoice value under guarantee.
Not only is each stage designed to ensure risk-free export sales; it lets the exporter offer more attractive terms to overseas customers. Both the exporter and the customer also benefit by spending less time and money on administration and documentation.
THE ADVANTAGES FOR EXPORTERS ARE:
THE ADVANTAGES FOR THE IMPORTERS ARE:
- They can buy on open account terms.
- They do not need to issue L/C L/G or Promissory Notes.
- They can expand their purchasing power without using existing lines of credit.
- They can purchase goods or services without incurring delays.
- They will find it easier to generate new sources of supply.