Factoring 101

Export Factoring

Export Factoring

For brokers, understanding how international and cross-border factoring works is important.  It you are marketing to manufacturers and distributors, you are definitely going to need to understand how your prospective clients can guarantee payment on orders from foreign customers.  Many brokers and consultants make it a point to attend international trade shows at every opportunity the can get.

Export Factoring

As international trade continues to grow, so do the opportunities for international factoring or import-exportfactoring.  It is becoming well established in many developing nations (especially those that are highly industrialized) and is often considered the financing method of choice for export trade between the United States and Europe. It is also growing rapidly in trade to the Pacific Rim and in some Asian nations,its growth has been described as “explosive”.

International factoring offers a complete financial package that combines working capital solutions, credit risk protection, accounts receivable bookkeeping, and professional collections.  International factoring transactions are almostalways non-recourse with payment guaranteed to the exporter. Therefore, international  factoring transactions generally require an importer of substantial credit.

Four Parties

There are four parties involved in a standard international import-export factoring transaction.  These are the…

  • exporter
  • importer
  • export factor
  • import factor

In most typical international factoring transactions, the export factor will be located in the same country as the exporter of goods and the import factor will be located in the same country as the importer of goods.  The exporter will work with the export factor who has a relationship with the import factor.  Usually both of these entities will often belong to an international factoring organization such as Factors Chain,  located in Amsterdam (www.factors-chain.com) or International Factors Group located in Brussels, Belgium.  https://fci.nl/en/home/factoring

FCC-Factors Chain International

FCE (Factors Chain) was established in 1968 as an organizational body for factors interested in cross border transactions around the world.  As the largest global network of factoring companies, (currently 400 members in 90 countries), FCI has established a protocol to govern international factoring transactions. 

The business relationship between the import and export factor is governed by this protocol (known as the GRIF or General Rules for International Factoring) which binds them when they become a member of “the chain”.  If only one factor is amember of the chain, the non-member can still provideservices by agreeing to be bound by the chain’s established financing protocol.

Establishing a Relationship with an Export Factor

For your clients exploring their first export sales transactions, international factoring offers one of the most accessible methods of financing such sales although only on a transaction-by-transaction basis.   Financing will be made even easier if the business owner already has a domestic factoring arrangement in place. 

 If an entrepreneur’s business is one that is focusing on and will likely be engaging in international sales, the need for international trade assistance should be considered when exploring financing options initially and especially if selecting an accounts receivable factor.

Many Florida-based domestic factors are familiar with financing transaction in the Caribbean and certain parts of South America.   Several California and Texas-based factors are comfortable with financing transactions Mexico, the Pacific Rim and certain Central American countries.

If unable to find a domestic factor familiar with the country of import, view the membership at Factors Chain.