How can you benefit from factoring export receivables?

1 What is factoring?

Factoring is a process where you sell your export invoices to a factor, who pays you a percentage of the invoice value upfront, usually between 70% to 90%. The factor then takes over the responsibility of collecting the full payment from your customer, and pays you the remaining balance, minus a fee, when the invoice is settled. Factoring can be done on a recourse or non-recourse basis. Recourse factoring means that you are liable for any unpaid invoices, while non-recourse factoring means that the factor bears the credit risk.

2 What are the benefits of factoring?

Factoring can offer exporters several advantages, such as improving cash flow, reducing credit risk, saving time and resources, and enhancing competitiveness. By factoring, you can get immediate access to working capital without waiting for customers to pay. Non-recourse factoring also allows you to transfer the risk of non-payment or default to the factor, who will handle credit assessment and collection. Moreover, the factor can manage the administrative and legal tasks of managing export receivables, providing online reporting and tracking tools. This can free up your time and staff to focus on core business activities. Additionally, you can offer more flexible payment terms to customers without compromising cash flow. This can help attract new customers, retain existing ones, and increase sales volume.

3 What are the drawbacks of factoring?

Factoring has its own set of limitations and challenges that you should be aware of. For instance, it is typically more costly than other forms of financing, such as bank loans or overdrafts. Additionally, some customers may not be comfortable with factoring as it may be perceived as a sign of financial distress or lack of trust. Furthermore, certain factors may impose restrictions on your business, such as requiring you to factor all your invoices or limiting your access to other sources of financing. Therefore, it is important to consider these factors when deciding whether or not to use factoring for your business.

4 How to choose a factoring partner?

If you decide to use factoring for your export receivables, it’s important to carefully select a reputable and experienced factoring partner who can meet your needs and expectations. To help you choose a suitable factor, compare different factors and their services, fees, terms, and conditions. Additionally, check the reputation and credibility of the factors, such as if they are members of reputable trade associations like IFG or FCI. Furthermore, make sure to communicate clearly and regularly with the factors. Look for ones who are responsive, transparent, and supportive, as well as able to provide timely and accurate information and feedback. Establish a good rapport and trust with the factors, and inform them of any changes or issues that may affect your export receivables.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?