Supply Chain Solutions No.39 – Exporters, Invoice Factoring Delivers Value

Factoring or Trade Finance is a mechanism that frees exporters capital delivering a positive cash flow providing value to both Sellers and Buyers of any commodity.

Offering open account payment terms to international Buyers, either with a new or with long term relationship, has an element of risk; delayed payment, invoice deduction due to non-agreed claims, and payment default if a customer goes into receivership or cancels the goods.  Factoring protects the Sellers investment guaranteeing payment, moving the risk to the factoring company.

If the factoring company doesn’t take the factoring risk, you will know the Buyer has a credit risk.

Open account payment terms are a drain on capital.  Many Sellers rely on short-term finance to support open account payment terms.  Short-term lending in developing countries via legitimate sources can be a challenge, private lending with high-interest rates, risk and cost, is then utilised.  Factoring offers finance at set rates based on the Buyers viability through a legitimate organisation.

Factoring guarantees payment at a fixed rate the Seller can cost into the goods price.

What is factoring?

  • Factoring is the transfer of an invoice receivable from the Seller to a third-party factoring organisation who takes over the collection of the receivable from the Buyer with the finance fee deducted from the Seller’s receivable.

Why should Exporters use factoring?

  • Factoring offers an incredibly cost advantageous option to traditional short-term finance found in most developing countries. Why pay high-interest rates when you can use factoring?  Factoring adds value by bridging customer payments for immediate capital return.  Increase profit, reduce risk, use factoring.
  • Factoring increases business growth by granting direct access to capital upon goods export, delivering much-needed money to be reinvested back into your business to secure new sales and continued business growth.
  • Factoring allows risk-free open account payment terms of 30, 60 & 90 days to the Buyer. Payment terms through factoring deliver lasting Buyer relationships that make Sellers highly competitive and flexible for growth.
  • Changing from Telegraphic Transfer payment on shipment to open account adds business risk and pressure to cash flow. Factoring reduces risk and operational stress by managing the receivable, ensuring payment is made upon export while delivering the needs of the Buyer’s trade terms.
  • Letters of Credit with their myriad of terms can leave the most discerning Seller with the risk of the issuing bank discovering a discrepancy, not to mention the total cost involved for both Seller and Buyer. Factoring offers the same advantage, is much easier to navigate and provides the same benefit to the Buyer.
  • Factoring eliminates late payment from the Buyer by taking over the receivable. The Seller is guaranteed payment upon export freeing capital for new investments releasing energy to focus on your core business, not receivables.  Factoring delivers cash flow from receivables bringing a piece of mind.

Is factoring available to every Buyer-Seller pair?

  • Factoring viability is based on the credit score of the Buyer. Exports to Buyers must be within the agreed credit limit.
  • Factoring is only available to Buyers in developed first world countries due to credit visibility and controls.
  • Factoring can only be utilised for export trade.

Who pays the factoring cost?

  • Factoring fees are paid by the Seller, based on the agreed interest rate and the term, which is deducted from invoice payment.
  • The only cost is the interest rate based on the finance term.

How does the factoring process work?

  • Framework agreement is signed between Stenn and the Seller
  • Stenn evaluates the Buyer and determines a credit limit and interest rate.
  • Exhibit to the Framework Agreement is completed for each invoiced financed
  • Seller-Buyer sign a Notice for each Exhibit transferring the receivable to Stenn
  • Seller exports goods and sends copy documents to Stenn
  • Stenn pays Seller less agreed finance rate
  • Stenn collects receivable from Buyer

IDGC in cooperation with Stenn International, a UK-based factoring provider, focused on cross-border invoice financing between emerging markets and developed countries.  IDGC is the bridge between global Sellers and Stenn International, enabling the full benefit of factor finance to both Buyer and Seller.

We support businesses globally offering an easy solution to financing from export to customers in developed markets.  Factoring gives Sellers immediate access to risk-free capital upon export, and the Buyer receives flexible payment terms on an open account freeing necessary capital…a win-win solution for both Seller and Buyer.

Factoring is available to all global businesses exporting commodities to developed markets, reach out to Phil Bailey via email phillip.b@idgc.co to gain immediate benefit to your business.

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