Securing capital for your growing business can be a taxing experience even for the most dedicated business leader. If you are in the import or export sector, this difficulty is compounded by international laws, tariffs, and procedures that can make accessing working capital even trickier.
Furthermore, many banks put strict limitations on providing import and export financing to businesses because it is viewed as too risky. These financial institutions may also lack the familiarity with international trade and commerce to readily offer import and export financing.
In addition to greater risk, import and export factoring is different than other types of factoring in that it requires compliance with international trade policies and procedures. Importers and exporters must be sure to dot there I’s and cross their T’s as lacking proper paperwork can greatly delay business transactions.
Import and Export Financing Requires High Volume Minimums
As an experienced international financial institution, Business Factors is proud to offer diverse financing options, including import and trade export factoring. More than being knowledgeable about the processes and procedures related to trade import and export factoring, Business Factors has the multimillion dollar financial backing to support the sizable transactions that are typically associated with international trade. Many new or inexperienced commercial financing companies don’t offer this type of international financing because they lack the capital to do so.
The Fundamentals of Export Factoring
Selling your company’s finished goods overseas allows your sales and business to grow exponentially if you can find the right buyer. Getting your products to the international marketplace has almost unlimited growth potential. Such growth, however, usually requires sufficient working capital on the front end in order to make this growth possible. Invoice factoring from Business Factors supports this growth process by providing you with the capital you need to take your business overseas. Here’s how it works:
- First, land a qualifying international customer, an established business that can show it has a good credit history and a record of meeting its financial obligations in a timely manner.
- Obtain a complete and verifiable purchase order from the customer and issue them an invoice or receivable. (For this reason, import and export factoring is sometimes confused with purchase order financing though it is not the same thing. In this instance, the purchase order is a support document for the invoicing rather than the primary document itself.)
- Ship your products to your customer as stated on the purchase order; quantities and volumes must match. Retain your Bill of Laden for your records as this is a required document for trade export factoring.
- Pay international insurance premium on the export sale and again, keep the receipt for your records. (This insurance is required for international trade in order to provide coverage and protect your goods from damage or loss.)
- Now send all of these documents – purchase order, invoice, bill of laden, and insurance premium receipt — to Business Factors for verification. Due to international time zones and business protocols, the verification process for trade export factoring tends to take longer than it does for domestic processing.
- Once approved, your company will receive up to 90 percent of the value of the invoice within a matter of days. You will receive the remainder of the invoice minus transaction fees when the invoice has been remitted. Depending on the size of the financial transaction and the credit history of your client, export factoring rates can sometimes be higher than rates for domestic transactions.
The Fundamentals of Import Factoring
Business Factors also offers import factoring, sometimes called “foreign exporter factoring,” to businesses headquartered overseas that want to sell their finished products to the U.S. market. Many U.S. commercial finance companies opt not to deal with global customers because there can be greater risks involved. Time zones, language barriers and international tariffs can make import factoring more complicated.
With Import Financing, Greater Risks Means Greater Reward Potential
Despite the higher risks and complications, Business Factors takes pride in offering import factoring to international customers. As with trade exporting, import factoring requires extensive due diligence and verification processes and thus can take a bit longer than domestic processing. It also has larger volume requirements, generally $200,000 or more. In most other ways import and export factoring are similar to these types of financial transactions within the U.S.
Factoring Is Preferred Financing Option for Those in Importing and Exporting
Import and export factoring can be even more beneficial to these businesses because the payment lag from international customers is often greater. Instead of waiting 30 days to collect on payment, those in the import or export business must often wait 60-days as standard.
For this and other reasons many business in international trade rely on import or export financing rather than banks, which can take too long. Factoring is so common in the import / export world of business, people might question why you don’t use it.
So if you are in the international trade business and are looking to shore up your working capital, talk to representatives at Business Factors about your financing options.