Export factoring is the transfer of the collection rights of the invoices issued by an exporter, for short-term sales on credit made in foreign trade operations, to a factor company. In exchange, the factor advances an amount - up to an agreed percentage - to which commissions and applied interest for the contracted services are discounted.
Financing working capital for sales abroad with export Factoring
Factoring is an optimal formula to finance working capital. It allows a company to obtain the necessary liquidity for international sales operations almost immediately, maximizing cash flow even when partial payments are agreed. It can be an alternative financing method to other forms of credit that are reflected in the balance as a financial liability, such as long-term bank loans and short-term bridge loans that cover cash needs before applying for a new long-term loan.
How export factoring improves the balance
Exporting companies, whether large or small, improve their balance ratios (operative and treasury) and structure when contracting an export factoring service.
Factoring is not only a form of financing, but an instrument that also offers other services such as the corporate and commercial investigation relating to the solvency of the importing companies, collections management and assistance with foreign sales and collections accounts.
The factoring service that has traditionally been offered by credit institutions requires, for general terms, that this operation be exclusive of a single financing entity for the same client of the exporter, and must assign all the collection rights to that client.
As it happens in national operations, non-recourse factoring or recourse factoring can be used in foreign trade operations as well.
In the case of using non-recourse export factoring, the export company adds to the other services that received from the financial institution, the insolvency risk coverage of the foreign debtor.
In the case of using a recourse export factoring, the export company is responsible for the insolvency risk of the foreign debtor. In this case, export factoring resembles export credit insurance, although it has higher costs because of all the services it may include.
Which companies and when to use export factoring
Factoring helps especially those export companies that sell under open account conditions and want to cover the risk of credit losses due to insolvency of the importer or delegate to the factor the collection service of its foreign customers.
Export factoring may be of interest to large exporting companies and to small and medium-sized enterprises that are growing but not at the beginning of their export activity. It is suitable for constant exports addressed to foreign buyers who are regular customers.
Since factoring companies do not usually accept a customer for a single agreement, they condition the service to the exporting company having a certain volume of annual sales. In Summar we count with a fully bilingual customer service team that will offer a custom-made factoring service to meet your expectations. Contact us and a specialized representative will provide you with the tools for you to take advantage of a constant and positive cash flow.