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The Complete Guide to Export Factoring

The Complete Guide to Export Factoring

Investing is truly a global business, allowing people to invest in local businesses or international ones. As global dynamics shift, changing the relationship between different countries, it is easy to see why people may sometimes prefer to invest in international exports. However, international companies may find it hard to get their money in a timely manner in this arrangement. As such, export factoring companies in the United States can step in as a middle man, allowing international companies to get their money through the process of export factoring.

Export factoring involves three entities: the international company with short-term foreign accounts receivable, a third party export factoring company in the United States, and the investor who owes the money to the international company. When the international company uses an export factoring company, they basically sell the account to the export factoring company at a discount, which allows them to get that portion of their money immediately. The United States export factoring company then collects the money from the investor in time, and the international company collects another portion of their money.

Export factoring is similar to import factoring, but with one major difference. Export factoring also involves a fourth member, an overseas factoring company that works in the same area as the international company. This overseas factoring company helps the United States export factoring company to take all credit risk for the overseas investors.

Before an export factoring business will enter an agreement with an international company, there are certain traits they must see in that company. First, it must show a good record over time of profitable sales. The management of the company must be reputable, and the product or service has to have been delivered already at the time of agreement. The investor can not have any rights to return or put off paying what is owed. These, among other terms, help protect all parties involved from unnecessary financial risks.

Export factoring helps increase foreign market sales, making the process easier for all parties involved. It helps international companies avoid the costs of going through an international credit company before providing products or services to overseas investors. It also protects against credit loss from overseas sales. It also helps ensure that the accounts receivable process goes smoothly with overseas sales.

The way export factoring companies make money is by taking a fee from each accounts receivable transaction. Both the export factoring company in the United States and the overseas factoring company will need a fee for their services, but the cost is worth it if the international business wants to avoid the hassle, costs, and delay in payment from overseas business. The process is simple. The export factoring company pays a certain portion of the total bill amount up front, then collects the full amount from the overseas investor. The export factoring company then pays another portion of the bill, retaining a small percentage – usually less than four or five percent – of the total bill for themselves. With export factoring, international business can be conducted in a smooth and easy way.

Photo courtesy of runhmc.

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