Guide to invoice factoring

• Advantages and Disadvantages
• Invoice discounting and debt factoring : How it works
• Export factoring
• How to choose a factoring company

Export factoring

Export factoring is a specialist facility offered by some invoice factoring companies to help finance exports and international sales. Usually this involves a third party finance organisation in the country in which you are doing business which collects payment. This overcomes difficulties that could be encountered because of different customs, laws, language and business practices.

Despite the additional party involved, you should notice no difference in the service offered to you. There is no significant difference between invoice discounting and invoice factoring offered locally and internationally. However, some invoice factoring companies may offer lower levels of prepayment for export invoices compared to local transactions.

The principle factor to consider is whether you wish to be paid in the local currency or sterling. If you undertake regular business in the country concerned, it may be worth having a local bank account for local currency transactions. However if large sums are concerned, you should take specialist advice on hedging against currency fluctuations.

Export Factoring Requirements

1. For EU based exports, turnover requirements are often less than for conventional factoring and many factoring companies require only a turnover of £100,000 including domestic sales to offer finance through export factoring
2. Factoring companies within the EU will often factor small debts from other EU companies without the need for a third party
3. Outside the EU factoring companies require a higher level of sales to specific companies. For example sales of at least £500,000 will often be required within a given country.
4. You can expect a better deal the higher the volume of sales

Export Factoring Features

1. You can be paid in local currency or domestic currency even if you invoice in sterling
2. You can choose to protect your payments against currency fluctuations
3. Although there are various forms of financing exports, the cost of export factoring is usually less than conventional export finance
4. You will usually pay more for export factoring than domestic invoice factoring
5. Most invoice factors insist upon credit protection insurance