Sellers, Trade Finance Delivers Value to Buyers
Trade Finance facilitates Factoring Delivering Value to Both Sellers and Buyers
Trade Finance is a mechanism that facilitates Factoring freeing sellers capital delivering a positive cash flow providing value to both Sellers and Buyers of any commodity.
Factoring offers 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 Sellers investment guaranteeing payment, moving the risk to the Trade Finance Provider.
If the Trade Finance 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.
Trade Finance guarantees payment at a fixed rate the Seller can cost into the goods price.
What is Trade Finance & Factoring?
- Trade Finance facilitates invoice factoring which is the transfer of an invoice receivable. The Trade Finance provider takes over the collection of the receivable from the Buyer, pays the Seller, deducting fees against the paid receivable.
Why should Exporters use Factoring from Trade Finance Providers?
- 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.
- 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.
- 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.
- Eliminates late payment risk 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 Trade Finance available to every Buyer-Seller pair?
- Viability is based on the credit score of the Buyer. Exports to Buyers must be within the agreed credit limit.
- Available only to Buyers in developed first world countries due to credit visibility and controls.
- Can only be utilised for export (cross boarder) trade.
Who pays the Trade Finance cost?
- 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 Trade Finance / Factoring process work?
- Framework agreement is signed between Trade Finance Provider and the Seller
- Trade Finance Provider 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 the Trade Finance Provider
- Seller exports goods and sends copy documents to Trade Finance Provider
- Trade Finance Provider pays Seller less agreed finance rate
- Trade Finance Provider collects receivable from Buyer
IDGC facilitate Trade Finance that supports Sellers globally, offering an easy solution to finance exports to Buyers in developed markets. Factoring gives Sellers immediate access to risk-free capital upon export. 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 to receive an immediate benefit to your business.
Like to know more, contact PHIL BAILEY – APPAREL & TEXTILE GLOBAL SOURCING OPERATIONS LEADER
A Global Sourcing, Procurement & Supply Chain Leader with 28 years proven skill transforming complex Retail, Wholesale, Catalogue and Ecommerce sourcing, supply chains and operations for global Apparel, Textile and Consumer Products businesses that source from low cost production regions and distribute to global markets.