How Factoring Works for International Invoices
June 25, 2009 by Accounts Receivable Factoring
Filed under About Factoring
If you are an exporter of goods to other countries, then at some time or the other, you must have faced a cash crunch and wished that you had ready cash in hand, instead of having to wait for your customer’s payments to arrive. Well, you now have a way of getting ready cash against your international invoices. Here’s how.
Due to heavy competition, you could have been forced to offer credit to your customers. If you have exported your goods on credit, then your local export factoring company will “buy” your receivables off you after you have dispatched the goods to your customer. They will send these receivables to an import factoring company situated in the same country as your customer, who will then do the follow up in getting your payment released on the due date. So, in international factoring, two factoring companies are normally involved.
You will get around 90% of your invoice amount immediately within a few days, which will be wired to your account by your factoring company. The balance will be transferred to your account, once your customer has released the payment on the due date. This last payment will be minus the factoring company’s charges for providing you this service, which is normally 2.5% to 4% of the total invoice value. This percentage of charges will depend on the credit period you have given to your customer, the credit rating of your customer as decided by your factoring company, and the total amount of business, value wise, which you provide to your factoring company.
These factoring companies can also take care of your collection of payments from your customers. This can be a boon for you, since you can now concentrate more on sales rather than worry about collections. The factoring company will send you regular updates of the receivable reports of your customers, enabling you to have an accurate status of your financial side of your business.
The advantages of international factoring are that your cash flow improves immediately, enabling you to pay off immediate expenses like staff salaries, bulk purchases, etc and also eliminates the need to maintain an international collection department. This facility also gives you a chance to expand your business by taking on more exports to different countries, where your factoring company has tie-ups. This facility is also convenient rather than taking a bank loan, which would normally require guarantors, collateral and intensive documentation. You would have to pay interest on that loan in any case. International factoring is more like an extension of your current business, as it takes care of your payment collection as well as provides you with ready cash.
You should note that these services of an international factoring company are slightly expensive, since two factoring companies are involved. There should also, not be any quality problems with regards the goods, which you have exported. You will also have to commit a minimum amount of business to your factoring company. Since your factoring company might take over your collections side and even take care of your bad debts, there could be some friction between you and your customers. Your factoring company might also ask for collateral from your customers as a guarantee against bad debt, which your customers might be averse to giving.
So, after studying the above points, you too can go in for international factoring of your invoices, to put your business on the fast track.
Thanks to Kris Koonar for contributing this article to our Factoring blog:
Due to heavy competition, you could have been forced to offer credit to your customers. If you have exported your goods on credit, then your local export factoring company will “buy” your receivables off you after you have dispatched the goods to your customer. They will send these receivables to an import factoring company situated in the same country as your customer, who will then do the follow up in getting your payment released on the due date. So, in international factoring, two factoring companies are normally involved.
You will get around 90% of your invoice amount immediately within a few days, which will be wired to your account by your factoring company. The balance will be transferred to your account, once your customer has released the payment on the due date. This last payment will be minus the factoring company’s charges for providing you this service, which is normally 2.5% to 4% of the total invoice value. This percentage of charges will depend on the credit period you have given to your customer, the credit rating of your customer as decided by your factoring company, and the total amount of business, value wise, which you provide to your factoring company.
These factoring companies can also take care of your collection of payments from your customers. This can be a boon for you, since you can now concentrate more on sales rather than worry about collections. The factoring company will send you regular updates of the receivable reports of your customers, enabling you to have an accurate status of your financial side of your business.
The advantages of international factoring are that your cash flow improves immediately, enabling you to pay off immediate expenses like staff salaries, bulk purchases, etc and also eliminates the need to maintain an international collection department. This facility also gives you a chance to expand your business by taking on more exports to different countries, where your factoring company has tie-ups. This facility is also convenient rather than taking a bank loan, which would normally require guarantors, collateral and intensive documentation. You would have to pay interest on that loan in any case. International factoring is more like an extension of your current business, as it takes care of your payment collection as well as provides you with ready cash.
You should note that these services of an international factoring company are slightly expensive, since two factoring companies are involved. There should also, not be any quality problems with regards the goods, which you have exported. You will also have to commit a minimum amount of business to your factoring company. Since your factoring company might take over your collections side and even take care of your bad debts, there could be some friction between you and your customers. Your factoring company might also ask for collateral from your customers as a guarantee against bad debt, which your customers might be averse to giving.
So, after studying the above points, you too can go in for international factoring of your invoices, to put your business on the fast track.
Thanks to Kris Koonar for contributing this article to our Factoring blog:
Freight Factoring provider The Phoenix Capital Group can provide competitive finance rates for Freight Bill Factoring. For a no hassle quote visit our website: http://www.phoenixcapitalgroup.com.
What Companies Must Know About Freight Factoring
May 28, 2009 by Accounts Receivable Factoring
Filed under About Factoring
If you are running a small to medium freight company, then you must be losing sleep, worrying about getting cash on time to meet your expenses and getting your payments from customers on time. This is where freight factoring can help your business go from slow to quick growth.
When you haul freight for your customer or freight broker, you would be issuing a freight invoice. You would then wait for 30 to 90 days depending on the credit given to your customer, for your payment to arrive. Freight factoring companies will “buy” this freight invoice off you and give you the invoice amount immediately. This payment will be in 2 installments. The first installment will be transferred to your account in 2 to 4 days and could be upto 90% of the invoice value. The 2nd installment will be the balance amount and will be transferred to your account after your customer makes the payment on the due date, minus the ‘factoring fees’.
This means that you get your money almost immediately after making the invoice and this ensures that you can meet your expenses with ready cash. This will enable you to pay off your fuel bills and salaries on time and also enable you to take on new and bigger hauls, thereby increasing your business. This will mean increased credit freight invoices and consequently more business for your freight factoring company, and again more cash payments for you. A winning combination indeed, but you should be careful about some points, while hiring the services of a freight factoring company.
The ‘factoring fees’ could be from 1.5% to 5% of the total invoice amount, depending upon various factors such as the credit period of the invoice, the credit rating of your customer as decided by the factoring company and the total volume of business, you give to the factoring company. So, if you are giving more than 30 days credit to a customer, who is rated low on the factoring company’s credit rating list, then the fees will be the highest.
That could reduce your profit margin substantially. The freight factoring company should also be able to handle your account efficiently and since they could also be taking over your payment collection from you, they would have to behave courteously with your customers or they could end up damaging your reputation and relation with your customer. Your customers will also have to be informed about your tie-up with the freight factoring company and some of them might not be very comfortable in dealing with third parties.
These problems could crop up, once you hire the freight factoring company. But, if you keep an eagle eye on their operations, you could quickly diffuse any tricky situation without ruffling too many feathers. Some factoring companies also offer ‘non-recourse’ factoring, whereby any customer defaulting on his payment will be the factoring company’s problem and not yours. This will help you in concentrating more on increasing your hauling business, rather than losing sleep over bad debts. However, any additional service including this one from the factoring company will cost you more. You will have to decide finally, on which services you would require from them and which you don’t.
So, freight factoring can be a boon for your budding freight business, but you should also understand the risks and charges associated with it.
Thanks to Kris Koonar for contributing this article to our Factoring blog:
When you haul freight for your customer or freight broker, you would be issuing a freight invoice. You would then wait for 30 to 90 days depending on the credit given to your customer, for your payment to arrive. Freight factoring companies will “buy” this freight invoice off you and give you the invoice amount immediately. This payment will be in 2 installments. The first installment will be transferred to your account in 2 to 4 days and could be upto 90% of the invoice value. The 2nd installment will be the balance amount and will be transferred to your account after your customer makes the payment on the due date, minus the ‘factoring fees’.
This means that you get your money almost immediately after making the invoice and this ensures that you can meet your expenses with ready cash. This will enable you to pay off your fuel bills and salaries on time and also enable you to take on new and bigger hauls, thereby increasing your business. This will mean increased credit freight invoices and consequently more business for your freight factoring company, and again more cash payments for you. A winning combination indeed, but you should be careful about some points, while hiring the services of a freight factoring company.
The ‘factoring fees’ could be from 1.5% to 5% of the total invoice amount, depending upon various factors such as the credit period of the invoice, the credit rating of your customer as decided by the factoring company and the total volume of business, you give to the factoring company. So, if you are giving more than 30 days credit to a customer, who is rated low on the factoring company’s credit rating list, then the fees will be the highest.
That could reduce your profit margin substantially. The freight factoring company should also be able to handle your account efficiently and since they could also be taking over your payment collection from you, they would have to behave courteously with your customers or they could end up damaging your reputation and relation with your customer. Your customers will also have to be informed about your tie-up with the freight factoring company and some of them might not be very comfortable in dealing with third parties.
These problems could crop up, once you hire the freight factoring company. But, if you keep an eagle eye on their operations, you could quickly diffuse any tricky situation without ruffling too many feathers. Some factoring companies also offer ‘non-recourse’ factoring, whereby any customer defaulting on his payment will be the factoring company’s problem and not yours. This will help you in concentrating more on increasing your hauling business, rather than losing sleep over bad debts. However, any additional service including this one from the factoring company will cost you more. You will have to decide finally, on which services you would require from them and which you don’t.
So, freight factoring can be a boon for your budding freight business, but you should also understand the risks and charges associated with it.
Thanks to Kris Koonar for contributing this article to our Factoring blog:
Freight Factoring provider The Phoenix Capital Group can provide competitive finance rates for Freight Bill Factoring. For a no hassle quote visit our website: http://www.phoenixcapitalgroup.com.
