Export Factoring:

Businesses involved in international trade often face a liquidity crunch, which renders them incapacitated to meet day-to-day financial requirements. This scarcity also hinders its supply chain management and downsizes the growth of an organisation. So, business owners opt for sources of external financing, like export factoring, to ensure that their businesses remain afloat and operations uninterrupted.

In this regard, businesses can also opt for KredX’s integrated cash flow solutions as viable funding sources. Our services allow quick access to funds, thus providing liquidity for expansion and growth of businesses. You can avail funds within 24-72 hours*, which makes our disbursal quick and hassle-free.

What Is Export Factoring?

Export factoring is a financial solution available to exporters, wherein a financier or factor extends cash at a discounted rate to a firm against the purchase of its receivables. It is the summation of export working capital financing, credit protection, foreign accounts receivables bookkeeping, and collection services. Typically, a financier offers 80% of the invoice value to a firm after it enters into an agreement with it. This financier also assumes the risk of default on payment by an importer. 

It is best suited for an organisation that exhibits the following characteristics -

• The firm is an established exporter.
• It wishes to have the flexibility to trade on open account terms.
• It wants to outsource credit and collection responsibilities.
• The business seeks to eliminate the inherent risk of non-payment on export sales.
• It aims to maximise cash flow, particularly during periods of rapid growth.

Types Of Export Factoring:

There are two kinds of export factoring 

• Discounting Factoring

Here, the financier pays an advance to exporters against the receivables before the funds are collected from an importer. The cost of this funding depends on the tenure and volume of discounting.

• Collection Factoring

With this facility, the financier pays the exporter at the time of maturity of receivables after deducting a commission. This eliminates the risk of non-payment by the importer during maturity.

Process Flow:

The process is initiated, when a business sells its receivables and assigns them to a financier. In return, the financier immediately fulfils the cash requirement of this business. This transaction facilitates better financial planning for a company, which the business owner leverages to reduce credit burden.

This process can be summarised as below -

• The exporting business sells goods to an importer.
• This exporter then raises an invoice on the importer.
• An agreement takes place between these two parties, wherein the importer agrees to make payment at the end of the credit period.
• To avail export factoring, the exporter sells the receivables to a financier.
• This financier then grants a certain percentage of invoice value upfront to the exporter.
• When the maturity period ends, this financier collects payment from the importer.

Benefits Of Export Factoring To A Business:

Export factoring presents several short-term as well as long-term benefits to a business, such as -

• Immediate Cash Injection

The exporter avails immediate funds on the sale of invoice receivables to a factor. This upfront disbursal satisfies instant cash requirements of businesses. An immediate injection of cash allows a smooth flow and functioning of a business.

• Improved Cash Flow And Working Capital

Export factoring ensures that a business can maintain a healthy cash flow. An influx of cash offers businesses access to capital so that they can procure raw materials or invest in expansion.

• Collection Management

The financier assumes the responsibility of collecting receivables from the importer. Therefore, the exporter enjoys exemption from the collection of this payment, which allows him to focus on other business activities.

• Reduced Risk

In export factoring, the financier guarantees payments from importers. The exporter, in this case, need not bear the default of payment by importers. 

• Competitive Advantage

India’s export sector is progressing steadily. Businesses must keep pace with this development and sustain tough competition. A company that offers open account transactions can surpass its competitors and stay ahead in the marketplace.

• Business Growth

Export factoring eliminates the hindrances of international trade for domestic entities. As a result, a company can operate on a global market with ease, which accelerates its operations, expansion and growth. 

Apart from factoring, export businesses can also opt for invoice discounting wherein the financier collects payment from the business, without involving its importers. This facilitates elevated confidentiality in the process. 

For instance, KredX’s invoice discounting services has contributed to the growth of more than 15,000 businesses. Our services do not require businesses to pledge their assets as collaterals. As a result, a business can gain access to an optimised cash flow, which is essential for its survival in the market.

Current Demand For Export Factoring:

Cash credit and overdraft facilities are not easily accessible financing alternatives in the global market. Therefore, factoring stands as a preferred source of financing. In India, borrowers still prefer cash credit and overdraft facilities as more acceptable sources of funding. Debtors have apprehensions about accepting an assignment and show an unwillingness to pay directly to borrowers. Additionally, export factoring does not get sufficient push from the banking sector of the country. 

Export factoring services in India are offered by NBFCs, which are essentially financed by banks. Banks levy a high rate of interest on these NBFC factors, which in turn charge additional interests from borrowers. Therefore, businesses receive export factoring facilities at a very high rate of interest. Additionally, factors or financiers usually look into the sales history of a firm before entering into an agreement. So, export factoring is ideally suited to established exporters, with a significant business vintage. 

Alternatively, businesses can opt for invoice discounting, wherein the process to avail funds is much less convoluted and time-efficient.

KredX stands as a leading provider of integrated cash flow solutions so that businesses can avail funding at a lower cost than export factoring. We enable businesses to take care of their short-term liabilities without compromising on their assets via our invoice discounting service. Our services allow enterprises to utilise the funds tied-up in invoices so that they can continue to operate with ease.