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Invoice Finance

What criteria may lead to an exporter considering Invoice Finance/Factoring?

  • Pressure on cash flow due to increased demand for products.
  • Delays in receiving the settlement of invoices, despite often offering 30 or 60-day payment terms to buyers.
  • Instead of securing a bank loan for a fixed amount, factoring has no limits and factoring is not a loan.
  • The seller may be relatively new to exporting and, therefore, has no prior credit or performance history. However, clients of the company may have long payment histories and good credit scores.
  • Limited resources are available to monitor and chase for payment of invoices.
  • Use the information available from the factor to assess and search for new clients.

Different Types of Invoice Finance/Factoring options available.

Import Finance:A service rendered by the Import Factor who provides buyer risk coverage to 100 % within approved revolving credit limits and collection service to the Export Factor. The Export Factor assigns the invoices of its clients to the Import Factor who becomes the legal owner of the receivables. 
Export Finance:The Export Factor purchases invoices from its client (exporter) to its foreign buyers (importers) and pays 80-90 % in advance based on the buyer risk coverage and collection service provided by the Import Factor. After receipt of the buyer’s payment, the Import Factor immediately remits the full payment to the account of the Export Factor. If the buyer should be unable to pay and the invoice is not claimed or disputed the Import Factor is obliged to pay under approval 90 days after the due date of the invoice. 
Without recourse Finance:The Import Factor covers the risk of bad debts or insolvency of buyers, provided that no valid disputes related to the receivables have been raised. The Import Factors provides credit investigation and credit protection, collection, litigation and ledger management. 
With recourse Finance (Collection-only):The Import Factor covers the risk of bad debts or insolvency of buyers. Between the seller (exporter) and its Export Factor, it has been agreed that the seller shall re-purchase the receivables (if advance payment has been made ) for which the Import Factor was not able to collect the payments. The Import Factor provides ledger management and collections but no debtor risk coverage. Litigation can be done by the Import Factor but the Export Factor/exporter has to bear all costs related to legal action. As part of collection-only, the Export Factor can ask the Import Factor to perform invoice verifications.
Disclosed (notified) Finance:The Import Factor sends a notification (introductory letter and assignment text suitable for the law of the country where the buyer is located) to the Export Factor who obliges the exporter to inform the buyers (importers) about the assignment of the receivables. The buyers are asked to make payment only to the account of the Import Factor. After receipt of the payment, the Import Factor immediately remits the amount to the account of the Export Factor. 
Undisclosed (non-notified) Finance:The buyers (importers) are not notified about the assignment of the receivables. Also known as confidential or NNF-Factoring, the buyers continue to pay the invoices directly to its supplier (exporter). The Export Factor informs the Import Factor about every payment received by the exporter. Export and Import Factor have signed a supplemental agreement to the Interfactor Agreement in which a disclosure period of the assignment (usually 30-60 days after due date) has been stipulated.
Islamic Finance:Islamic international factoring works on the basis of tamleek, exactly like the assignment in usual international factoring, with the only difference of signing the Supplemental Agreement to cover the deviations mentioned earlier. If the export factor is an Islamic one the import factor may sometimes receive an order approval request instead of a credit line depending on which Islamic financial instrument is used as a basis for factoring.

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