What is import-export factoring?
Invoice factoring has become one of the alternative financing options that businesses of all scales turn to for additional funding. May it be for an investment or budget augmentation, invoice factoring is a good option to raise any funds needed.
Import and export companies likewise turn to invoice factoring. In this article, we will learn more about import-export factoring, how it benefits these companies, how it works, and the process of application. Let us dive right in.
Benefits invoice factoring brings your import-export company
Import-export companies are generally large companies with transactions from all over the world. Given its magnitude, it is bound to need more funds for business expansions and unexpected finances to keep the company going. Here are the benefits of invoice factoring to import-export companies.
Import factoring 101
Import factoring offers to fund businesses situated abroad intending to do business in your local area. Others find this kind of funding risky, but as the adage goes: high risk equals high rewards. Import factoring generally begins on a higher beginning mark, from $200,000 to $300,000. By resorting to importing factoring, these companies can have additional capital without incurring any debt, and therefore, removing the need to open a line of credit with banks.
Export factoring 101
Export factoring helps to fund export companies without the need for any security instrument or collateral other than the outstanding invoices that the company has. It gives wide elbow room for working capital improvement and reduces the risk of bad debts. This way, you gain access to additional financing for the business and at the same time, take advantage of supplier discounts available.
How does import-export factoring work?
The process of import-export factoring involves advancing the cost of outstanding or unpaid invoices of import and export companies. The companies turn over their unpaid invoices to factoring companies. In turn, these companies release the invoice amount minus a small portion of the processing fee. The factoring company now assumes the businesses’ role as the creditor of the customers whose invoices were sold.
They will now be the ones to collect the outstanding amounts for the businesses’ customers. In this funding scheme, import-export companies would not need to wait long for the release of funds. Unlike the lengthier process that traditional banking institutions take. The funds could then be used to support the needs of the company – from payroll payments to operation and other overhead expenses.
What is the process of applying for import-export factoring services?
Different factoring companies have their own process when it comes to import-export factoring applications. Briefly, here is how it works:
1. The import-export company should have a reliable and established international client, with good credit history.
2. The business and the customer should iron out the details of the transaction. Once the details are threshed out, the company then issues an invoice for the transaction.
3. The company now fulfills its end of the transaction by shipping the goods and making sure that all the necessary paper works were taken care of.
4. The company now goes to the factoring company with the invoice together with the other documentation needed (insurance premium receipt, bill of lading, etc.). These documents will now be verified, and the customer’s credit history will now be checked. Since we are talking about international transactions here, it will take more time than usual for local factoring transactions; however, the turnaround time is still quick.
5. Once the approval comes through, the company can expect the release of the funds within 24 to 48 hours.
The process may vary slightly, depending upon the protocol of the factoring company. This is but an overview of what you can expect from your application. Invoice factoring alongside other alternative financing schemes is here to be maximized. Know your options and explore more to get the best for your business.