Export Financing - How to Use International Factoring to Finance your Sales

Have you ever wanted to sell a product or service outside of your geographic area, but didn't want to pay the additional fees associated with international shipping? International Factoring (IF) is a process that allows businesses to get paid for products or services delivered internationally. Here, we will go over how IF works and how it can be used by start-ups in their sales efforts. The purpose of this blog post is help start-ups navigate the tricky world of international finance and provide some advice on putting together the strongest export financing package possible.

There are many benefits to using an IF transaction when selling internationally. Some of the most important are:

Payment to exporters can happen as soon as the goods are shipped. This allows exporters to sell on credit, which increases total sales and keeps cash flow moving smoothly.

Larger international transaction amounts can be handled at reduced cost through IF . For example, if you have $50,000 worth of sales that need to be exported from the United States, you may only have to pay around 1% on that transaction instead of 7% plus shipping and handling fees. In addition, using an IF company will usually cut out any currency conversion costs you would have to pay by having a business partner in another country that could accept your payment directly in their local currency.

. For example, if you have $50,000 worth of sales that need to be exported from the United States, you may only have to pay around 1% on that transaction instead of 7% plus shipping and handling fees. In addition, using an IF company will usually cut out any currency conversion costs you would have to pay by having a business partner in another country that could accept your payment directly in their local currency. IF is quick and efficient because it is a direct export transaction with no foreign exchange conversion and/or shipping required. As we know, international transactions can be cumbersome and time-consuming.

Large amount of capital is usually not required to get started with IF . The amount of capital required varies by country, but you can finance many transactions with as little as $10,000.

. The amount of capital required varies by country, but you can finance many transactions with as little as $10,000. Factoring can be used effectively for both simple and complex international transactions . For example, a simple transaction may be the one we mentioned above - $50k to pay for product or services delivered internationally. However, it is also a great option for more complex or risky transactions such as selling multiple products or services to one customer in another country or selling an expensive product like a boat or airplane.

. For example, a simple transaction may be the one we mentioned above - $50k to pay for product or services delivered internationally. However, it is also a great option for more complex or risky transactions such as selling multiple products or services to one customer in another country or selling an expensive product like a boat or airplane. If you are funding working capital, the money can be used in any way that adds value to your business and improves cash flow management.

International Factoring will give your business an edge in both sales and finance. In the rest of this blog post we will go over the process for beginning a factoring transaction, but you may want to read through the following blog post by our friend Amy Sadowski to better understand why IF is so beneficial to your business:

How Does International Factoring (IF) Work? [BLOG POST]

The first step in getting started with IF is understanding what ISF factoring is. ISF stands for International Sales Financing and it is an accounting method that allows businesses to use the money they are paid from export transactions as a source of working capital to pay bills and do day-to-day operations. This is a very common practice for exporters who get paid for their products or services before they have to pay their overseas suppliers.

The key thing to understand with factoring is that the invoice you sell to an IF company is not actually "sold" in the traditional sense. All of the rights and title to the invoices are actually still owned by the exporter, even though they have chosen to use IF as a source of financing. This means that you/your business can continue collecting on your debt and collecting fees if you need additional working capital. In addition, factoring allows your business to avoid paying unnecessary interest rates or currency conversion costs if your customers are willing to pay in US dollars upfront.

How can an exporter use ISF to get more money?

Exporters sell and deliver merchandise to retailers in other countries, which means that they must pay money to the retailer overseas before receiving payment for the merchandise. In addition, there are always expenses associated with selling internationally such as shipping, taxes and duty costs. Through ISF, exporters can use their foreign exchange earnings from selling products or services to pay these expenses. This way, the exporter can receive payment in US dollars or any other currency of their choice without incurring additional expenses like currency conversion fees or interest costs on the funds they receive from their customers.

The next step is understanding if you will qualify for an IF transaction through ISF. If you want to use an IF company to help your business receive capital for international transactions, you must be able to provide the IF company with an invoice that meets their requirements.

In order for an invoice to qualify for factoring it must meet the following requirements:

It has to be a good invoice. This means that it needs to have been delivered and paid up front. Your business cannot send invoices that are only partially paid and then collect more by using the factoring system. The exporter giving the invoice also should not have any outstanding balance on the invoice, including fees and interest.

This means that it needs to have been delivered and paid up front. Your business cannot send invoices that are only partially paid and then collect more by using the factoring system. The exporter giving the invoice also should not have any outstanding balance on the invoice, including fees and interest. It must be a trade receivable . This means that the invoice must be a product or service purchased by an importer within that country as opposed to an invoice to a domestic supplier.

. This means that the invoice must be a product or service purchased by an importer within that country as opposed to an invoice to a domestic supplier. A debt instrument for international payments should not exceed $5 million . This means that the total amount of money you will receive from all of the invoices your business is using to pay for international expenses should not exceed $5 million.

. This means that the total amount of money you will receive from all of the invoices your business is using to pay for international expenses should not exceed $5 million. The invoice must be less than 12 months old . In most cases, this means that the invoice has to be less than one year old at the time that it is sent to an IF company and it also must have been issued within 12 months prior to that point.

Conclusion

Factoring is a practical and cost effective way of getting funds for international expenses and can help your business in many ways. It is a great option if you are trying to avoid having to deal with financial institutions or banks that usually have a lot of requirements. By using an IF company, you will get the up-front money you need to pay for your international expenses, plus you don't have to worry about paying interest or currency conversion fees. Also, it is a way of getting money that does not require filing for financing through your bank or any other institution. We hope this brief introduction has helped you understand how factoring works and we recommend that you read through the ISF factoring process before moving forward with an IF transaction.