Export Funding Options to Consider

export-funding-ukEntrepreneurs all have a common dream: growth and expansion. In every industry, businesses strive not only for profitability but also for longevity and to do that growing one’s enterprise becomes part of the long term plan. One way to do so is by taking things to the bigger stage or in other words the world market. But that’s not an easy feat considering that exportation not only comes with a lot of work but also added costs. In comes export funding.

There are many ways by which business entities can finance their export projects and ventures and below are only some of the options available.

  • BANK LOAN – Perhaps one of the more common options, it refers to a long term borrowing, often of a large sum, from a banking institution. The amount loaned referred to as the principal shall be repaid in equal installments with interest for a specific period of time. Despite being a very popular option, not all exporting companies make use of it due to the weight of the liability. Plus, those with poor credit scores or inadequate assets (e.g. startups, small to medium scale enterprises) may find it hard to get an application approved due to the strict terms and conditions governed by it.
  • INTERIM FINANCING – This short term funding is very useful in terms of immediate needs. As its name suggests, it allows businesses to derive the needed cash to fund for their emergency or short term liquidity requirements while their main source of resources are not yet ready or are still being arranged (e.g. mortgage, proceeds from a sale, etc.).
  • INVOICE FINANCING – This asset based financing is different from the first two options in the sense that it is not a liability. In other words, there are no debts or loans involved. Here, cash is derived by advancing the value of a sales invoice (receivable) or a bulk thereof before their maturity date thus prior to payment and collections. This export funding option can further be split into two types as follows.
    • Discounting makes use of the invoice/s as security or collateral against the advance. Collection shall remain as the entity’s responsibility and once they have been completed as scheduled and as mandated by the stipulated maturity date, it shall then repay the provider for the amount advanced plus fees.
    • Factoring on the other hand involves the sale against the invoice’s collection. The advance is received similarly but shall only constitute to a majority percentage with the remainder less fees only to be forwarded upon payment completion. The burden of collection shall now be borne by the provider.

At the end of the day, the type of export funding chosen should complement the business entity’s needs.

Why Spot Factoring is Its Own Brand of Superhero

spot-factoring-financialA superhero refers to someone who has superhuman powers or abilities and uses them to fight crime or evil. We’ve seen them time and again from literature to film to television and print. They’re everywhere and we still adore them for obvious reasons. They save the day. In the business world, something comes quite close and it’s called spot factoring. As to why that is, we shall all find out today.

Considered to be one of the most versatile and easy to use financing methods there is, spot factoring allows companies to draw immediate cash from a particular sales invoice by advancing its value prior to maturity and collection in exchange for the right to collect against it. Now, why does it deserve the praise and honor it is given?

  • It’s as fast as “The Flash”. – It moves at the speed of light! Okay, maybe we’re exaggerating but in terms of finance, it sure does. You can advance the value of your chosen receivable within twenty four hours or a day’s time. You won’t achieve that with other available financing methods in the market.
  • It’s as smooth as “Bruce Wayne”. – More than his gadgets and his infamous bat mobile, Batman’s secret identity or should we say real life identity Bruce Wayne sure got chops in the business department. Like him, spot factoring is pro-business and seeks to help companies regardless of size and financial status. It puts a quick injection of cash in the working capital allowing for lesser opportunity losses and the pursuit of important projects. Not all entities can provide funds for projects at the moment every single time.
  • It’s as super as “Superman”. – What makes the best cash source? The mere fact that it is not a loan. Yes, you’ve read that right. You do not incur debt with spot factoring. As this is in no way a loan, it therefore does not increase your liabilities. You would not have to fear about the rising interests and the other strings attached to one. It is an asset transaction that only affects asset accounts in the company’s books.
  • It’s as precise as the “Green Arrow”. – In contrast to traditional factoring, spot factoring allows business entities to choose which invoice to use, when and how often. It is a onetime transaction that does not involve lengthy contracts. This means that there are no recurring fees and companies get all the liberty and flexibility they need.

http://workingcapitalpartners.com

Single Invoice Factoring Over Traditional Credit

invoicesSingle invoice factoring is the strategic method of raising financial resources against individual invoices. Since cash is locked up and tied to an asset, in this case a receivable, the procedure frees it up as it enables a business to receive money in advance on a single outstanding invoice before it matures.

Sounds confusing? To elaborate and help you understand further, allow us to put it in contrast to traditional credit, specifically a bank loan.

Bank Loan

  • Classification – It is a type of liability transaction. In other words, a bank loan is a type of debt or borrowing and therefore an obligation towards the financial provider.
  • Amount – The amount of loan depends on the amount applied for which may be more or less depending on the borrower’s creditworthiness.
  • Cost or Fees – It involves interests, oftentimes compounded, to be paid on top of the principal in equal installments.
  • Length of Contract – A type of long term loan, it can span from at least five years to thirty depending on the terms of the contract.
  • Collateral Requirements – Collateral is oftentimes always involved which can be any of the company’s or its owners’ assets. Properties would be one. It is used as a form of security against the loan in the event of nonpayment.
  • Application Process – It takes weeks to months for bank loan applications to be processed. They are very meticulous and comes with a number of requirements.

Single Invoice Factoring

  • Classification – It falls under the category of asset transactions. This means that it is not a debt and is therefore recorded as a decrease in trade receivables coupled by an increase in cash.
  • Amount – It is equivalent to the value of the invoice being subjected to the method.
  • Cost or Fees – The fee is a onetime deal which is often deductible against the total value advanced by the business. It is equivalent to an agreed upon percentage from both parties.
  • Length of Contract – It is a onetime deal and does not involve lengthy contracts.
  • Collateral Requirements – Because it is not a debt, there are no collaterals involved.
  • Application Process – Considered to be mighty swift, single invoice factoring can be processed quickly in contrast to other financing methods available in the market. Majority of providers can approve and release cash within at least a day’s time to at most of a few days.

When Spot Factoring Becomes a Wise Move

spot-factoring-invoiceLooking for a medium of financing is no easy job. With so many alternatives out there, people can get seriously lost. Confusion is something we’re all bound to face but that doesn’t mean that we can’t work around and away from it. This makes it important to understand each option before diving right through. Today we shall do exactly that by first getting to know more about spot factoring and what makes it a wise move.

Spot factoring falls under the category of receivables financing. It works by deriving cash from a customer or sales invoice. With this particular type, a specific invoice is selected. The rights to its collection are then traded to a financing institution called a factor in exchange for an advance of its value, often equal to at least 80% of its total worth with the remaining balance less the fees forwarded only upon collection from the owing customer. The collection function and all other responsibilities attached to it shall also be borne by the factor.

The reason why the method is often utilized lies in its various benefits as follows.

First, the cash is received almost immediately and prior to the receivable’s maturity. Some providers can even release the sum in as fast as a day’s time, something than no other type of financing is capable of.

Second, it hastens the collection. Businesses no longer have to wait for the invoice to mature before they can collect and use the cash. It essentially takes out the waiting game.

Third, it’s perfect for immediate needs. It cannot be denied that some invoices hold quite a significant value which can be used for an emergency expense or for purposes of operations and reinvestment. Because of its swift process, spot factoring is but the perfect choice.

Fourth, it strengthens liquidity and working capital. Because the locked up cash is freed almost immediately and prior to its supposed maturity, it injects resources into the system thereby improving working capital and liquidity at the same time.

Fifth, it is a onetime transaction. Spot factoring is selective in nature meaning that businesses have all the liberty to choose which invoice to use and when. There are no long term contracts involved so entrepreneurs need not fear of being tied to an agreement for a significant period of time. Plus, they have all the option to use it as often and as less as they want.

Export Funding: Pass or Go?

export fundExport Funding is a type of financing that has gained so much traction and following as it helps businesses go into the foreign trade without being weighed down by the strings and risks that usually attach to it.

When planning to export one’s goods, businesses need to factor in a lot of elements. This includes having to face the additional financial risks (e.g. credit, foreign exchange, interest, etcetera), the additional operational costs, collection burdens and country specific laws to name some. These alone are enough to terrify entrepreneurs and make them resign back to their domestic operations.

That should not be the case. There is a way to manage all that risk and burden and that is through export funding. This financial medium allows companies to work alongside a financial institution that shall bear the collection responsibility, have country specific market knowledge and expertise thereby avoiding the financial risks all while providing the advance to an export sales invoice.

In a way, this is akin to factoring but on an international scale and with added merits. Some providers can even arrange to release the invoice themselves to do away with language barriers and abide by the laws and regulations of specific nations. Plus, the fact that companies need not spend on a new office space and added labor is a huge advantage.

Furthermore, the advancing of the invoice value allows for entities to hasten their collection and not hurt its cash flows and working capital. Its cash grows as sales increases and money would be made immediately available and not stuck within the customer invoices. Remember that importers tend to defer their payments up until the goods have been delivered to their doorstep or until they have been resold. This can leave exporters with heaping piles of receivables which can be a problem in terms of liquidity.

At the same time, the chance to go into the international market and trade brings in a lot of opportunities. Among others there’s the decrease of seasonal losses, extension of product life cycles, bigger markets, larger sales and profits, lower per unit costs, maximization of asset usage and the list goes on.

Should you pass or should you go for it? That’s a question for you to answer on your own but if export funding is the tool that could help expand and grown your business then we say, why not?

Why traditional and Single Invoice Finance is Good for You

single-invoice-financeTraditional and single invoice finance has to be the saviors in a world full of cash flow needs and difficult financing options. They’re definite lifesavers if you ask us and here’s why.

In an invoice factoring arrangement there are three main characters or parties: the company selling its receivables, the customer who owes the company and to whom the receivables are attributed to and the financing agent called the factor.

In this scenario, the company sells its right to collect against the receivable by virtue of its sales invoice to the factor in exchange for immediate cash which is to be received before the customer pays their dues. The factor shall bear the burdens of collection and provide an amount that is equivalent to about 80-95% of the invoice’s total value with the remainder being held up until the customer pays in full at the maturity date of the invoice. It is only then when the balance is forwarded to the company less the fees agreed upon.

There are many reasons as to why these two methods are widely used and below are only some of them.

  • It’s relatively fast. – Ever heard of a loan or similar other financing medium that releases cash in a matter of a day? No of course not. Well not until invoice factoring. Most providers can approve and release the cash in as fast as twenty four hours.
  • There are lesser requirements to deal with. – It’s less of a hassle because of the far lesser amount of requirements to submit during the application process.
  • It’s no form of debt. – Wait what? Yes, you’ve read that right. Factoring creates zero debt because it is not one. It also does not bear all the other strings attached to one such as interests and penalty fees.
  • It injects immediate cash into the system. – With the swift process, it enables the immediate injection of resources into the cash flow thereby strengthening the working capital as it does. This is great in terms of liquidity purposes and frees up any locked in cash within invoices.
  • Even struggling entities can use it. – Really? Yes really. This is because traditional and single invoice finance providers bank on the customer’s creditworthiness and not on the company’s. After all, it’s the customer who has a debt in this situation as evidenced by the sales invoice.


Learn more at this site: http://workingcapitalpartners.com

Single Invoice Factoring for Manufacturers

financeOne of the biggest challenges that manufacturing businesses come to face would have to be their receivables. It does not come as a secret that credit sales comprise of a huge chunk in customer orders and although they still translate to assets, it does not necessarily mean liquid currency. Trade receivables can harm a company’s liquidity when it traps cash into invoices making it unavailable for immediate use, worse when the customer defaults. One of the more successful solutions to such dilemma happens to be in the form of Single Invoice Factoring. But what is it about?

Single Invoice Factoring allows manufacturers to advance the value of their receivables even before their owing customer makes the payment or before the credit sale matures. In such a scenario, the company chooses a particular invoice, oftentimes one with significant value and which covers the amount of a particular need, then factors it out. The provider called a factor shall then provide for an advance of the invoice’s value, which can range between 80-95%, in exchange for the right to collect against it. The remaining 5-20% shall be released only upon the customer’s full payment. The fees shall be deducted from such remainder.

Since many buyers would opt to defer their payments until goods are delivered and/or resold, this helps in ensuring that cash flows still remain on the positive side of the spectrum further strengthening the entity’s liquidity.

Apart from the immediacy of single invoice factoring where it can provide for the release of cash in as fast as a day’s time, it also brings manufacturers a number of other benefits. For one, it is not a debt. Companies need not worry about damaging their credit score or adding more obligations to the pile. Second, it hastens the receivable to cash turnover. It frees the locked up cash thus enabling cash flows to lie on the good side as mentioned earlier. Third, the collection burden and all tasks related to it shall be passed on to and borne by the factor. This relieves the company of such responsibility allowing it to focus on other aspects of operations, particularly those that bring more profit to the business.

And since Single Invoice Factoring banks more on the creditworthiness of the customer to whom the invoice is attached to, even struggling entities or those with a not so sterling credit history can apply for and make use of it without fuss.

Spot Factoring Versus Bulk Factoring

receivable-factoringReceivables factoring comes in two forms: bulk and spot factoring. Today, we’ll set out the differences and similarities of the two and hopefully help users establish which among them suits their needs best.

Definition

Bulk Factoring (BF) – Pertains to the use of customer invoices to draw immediate cash by selling the rights to their collection in exchange for an advance of their value, received before customers send in full payment or a part thereof.

Spot Factoring (SF) – Refers to the use of a specific customer invoice to draw immediate cash by selling the right to collect against it in exchange for an advance of its value, received before customers send in full or partial payment.

Users

BF – Companies that offer credit sales and therefore has trade or accounts receivables in their financial books can make use of the financing method. It is not restrictive so entities regardless of size, status and industry can utilize it.

SF – The same applies.

Term

BF – In this arrangement, all of the entity’s sales invoices for a particular period of time shall be subjected to the factoring method. Their values shall be advanced and collection shall be performed by the factor. It is a long term contract which will last depending on the agreement of the parties involved.

SF – In contrast, spot factoring is a onetime deal. It makes use of only one customer invoice making it a single transaction. It is because of this that it has been dubbed or called as selective or single invoice factoring in other places.

Cost

BF – The fee shall cover the long term period stated in the contract and will be a bulk percentage instead of an added up single fee for each invoice.

SF – There is only one fee involved which is dependent on the single invoice used. Because it is a onetime transaction, cost is also a onetime deal.

Benefits

Despite their differences, both bulk and spot factoring come with similar benefits or perks. First of all, it is a zero liability deal. It is not a type of debt and is in fact an asset transaction where an increase in cash is coupled by a decrease in trade receivables. Second, it is immediate and fast without the usual fuss involved among traditional financing methods. Lastly because it hastens the collection process, it is able to  better cash flows and improve the company’s working capital, allowing it to keep its liquidity or even improve it.

What is an Export Overdraft


What is an Export Overdraft

Foreign trade for most business entities is both a dream and a challenge. The possibilities and opportunities brought about by exportation are not only promising but also an avenue to expand operations and take advantage of the international market. Unfortunately, it isn’t an easy feat to accomplish not with all the exhaustive documentations required and the presence of various financial risks. This is why financing methods such as the export overdraft have been born. But what is it?

An export overdraft is part of business finance and a very potent tool in foreign trade. It is designed to aid startups, small to medium scale enterprises, established businesses as well as entities in recovery for their international and cross currency trading transactions without the much dreaded complications of financial risks (e.g. interest rate risk and currency rate risk) and meticulously detailed documentation requirements. Moreover, it can likewise sustain the cash flow necessities of a growing company who has yet to start exporting but finds pressure in terms of funding due to delayed cash actualization brought about by either strict vendor terms or deferred customer payments as in the case of credit sales.

What makes this financing method very appealing is the fact that it is competitively priced at an affordable rate without hidden costs and the restriction of a long term contract, making it feasible even to startups and small enterprises. Furthermore, it is very simple to use and understand as it an export overdraft facility works just like a factoring facility.

There are five main advantages to this method that many exporters and aspirants chase after. They are the following:

  • export-overdraftCurrency – Companies no longer have to worry about having to monitor the exchange rates and facilitate the currency conversion for all transactions.
  • Payment – Businesses are able to receive the payment of export orders almost instantaneously thereby strengthening the working capital, cash flow levels and liquidity.
  • Expertise – Companies get to tap on the facility’s expertise in international trade, foreign markets and collection procedures.
  • Language – Mastering several languages from customer countries will no longer be a necessity especially when it comes to collection and invoicing.
  • Risks – Certain risks such as those brought about by currency exchange rates and interests are minimized if not completely avoided allowing for lesser to zero losses.

Of course, a vital ingredient to export overdraft success is finding the right provider or facility such as workingcapitalpartners.com. In other words, chase for quality to receive it.

Export Finance Blunders and Mistakes

export financeExport finance has become one of the most powerful tools utilized by businesses that wish to expand their operations internationally however not everyone knows how to use it as best as they could.

It does not come as a secret that despite of the growth and promising sales of foreign trade, it comes with quite an amount of effort to pull out. Selling a product overseas require shipping and transfers. There are extra duties and taxes to be considered and not to mention freight expenses. Delivery takes long and so does payment. More time and energy will be required in assessing customers and their creditworthiness too. This is why export finance has been considered a hero in the equation but sadly many companies commit mistakes in its use. To avoid committing the said crimes and benefit more fully, here is a list of the said blunders to warn you ahead.

Mistake: Lack of Understanding

Fix: Despite of export finance’s usefulness, not all businesses know about it. Some may have heard of it but still fail to understand it completely. It is necessary to fully comprehend and grasp its use, its procedures, its pros and its cons to use it as best as possible. Research is key here and it won’t hurt to ask a professional to explain it to you either.

Mistake: Absence of Planning

Fix: Using it to your advantage will necessitate adequate planning. Companies need to incorporate it well into current operations and business processes. In order to achieve this, a plan has to be made and executed.

Mistake: Bad Providers

Fix: Not all export financers are great. Just like anything else, there are good and bad sides to the coin. You have to go with the former. Look for the best providers that’ll deliver the quality that you need. Again, research here is necessary. Ask around too and look for recommendations from friends, family and business colleagues. Don’t forget to refer to customer feedback and reviews too. You’re bound to find them with the help of the internet.

Mistake: Misleading Terms

Fix: Before you sign into the agreement of the export finance, make sure that you read through carefully and understand before you sign and concur to its terms and conditions. Not all providers are the same so don’t expect that one contract is the same as the other. Peruse through them carefully. Ask for clarification when needed and don’t hesitate to inquire about having certain clauses changed when required.

For more information on exporting visit http://workingcapitalpartners.co.uk/.