Export Factoring

It is also called as Two-Factor System. In this system, two factoring companies are involved in two different countries, involving four parties.

  1. Exporter
  2. Foreign Buyer
  3. Export Factor In India
  4. Import Factor In Foreign Buyer’s Country

Steps to be followed in Export Factoring:

  • Exporter approached the export factor with all the details of his business, a list of the customers & their countries, expected turnover to each country, payment terms & lines of requirement.
  • The export factor would contact his counterpart abroad (Import Factor) in different countries to assess the creditworthiness of the various foreign buyer.
  • Import factor does the preliminary assessment of the creditworthiness of the debtor.
  • If an assessment is positive, he would indicate the quantum of coverage & commission etc. to the export factor.
  • Next, the agreement is signed between the exporter & the export factor.
  • After shipment of the goods by the exporter, two copies of the invoices are sent to the export factor, who then makes the agreed payment to the exporter & send the invoices to the import factor.
  • Import factor, in turn, collects the debts & remits the proceeds to the export factor.
  • In the case of non-payments from any of the debtors at the end of the agreed period (normally 90 days from the due date), the import factor has to pay the amount of the bill from his own sources.
  • Finally, on the realization of the proceeds of the debt realized, the balance held with the export factor (20-25%) will be released.
  • Factoring fees would be debited to the exporter accounts & export factor remit the same to the import factor.

The main functions of the Export Factor:

  • Assessment of the financial status of an exporter.
  • Assessment of the financial status of an importer or foreign buyer through the import factor.
  • Payment of the receivables to the exporter after proper documentation
  • Follow-up of receivables with the Import factor
  • Sharing commission with the Import factor

The main function of the Import Factor:

  • Maintaining the details of the sales to the debtor in his country
  • The collection of the debts from the importer & remitting the proceeds to the export factor.
  • Providing credit protection in case of financial inability by any of the debtors.

Various types of Export Factoring

  1. Single Factoring System
  2. Direct Export Factoring
  3. Direct Import Factoring

Advantages of Export Factoring

  • An immediate financing up to certain percentage (75-80%).
  • No need for a letter of credit.
  • Bad debt protection up to 100%.
  • Maintenance of entire sales ledger of exporter
  • Credit checking of all prospective debtor through their counterparts in importing country.