Under Export Factoring, we factor export invoices drawn on overseas buyers and prepay to clients an agreed percentage of the invoice value immediately. We are members of FCI which has members 188 members spread over 50 countries around the world. Under two-factor system, the factor handling the collection of export receivables of clients (exporters) is called Export Factor (EF) and the factor in buyer’s country who undertake collection and credit protection services is called Import factor.

The following steps are involved:

• The exporter ships the goods to importer.
• The exporter assigns his invoices through the export factor to the import factor who assumes the credit risk. (as per prior arrangement).
• The Export factor prepays invoices
• The importer pays the proceeds to the Import factor, who transfers the amount to Export factor
• The export factor deducts prepayment already made, other charges and pays the balance proceeds to the exporter.

• Elimination of the cost and delays experienced in transacting business under LC
• The import factor offers credit risk protection in case buyer does not pay invoices with in 90 days of due date.
• ECGC policy cost can be saved. There is reduction is administrative cost as the exporter will be dealing with only one Export Factor irrespective of the number of countries involved.
• The exporter can obtain valuable information on the standing of the foreign buyers on trade customs and market potential in order to expand his business.
• The following up of receivables by import factor will speed up the collections.
• As we provide finance up to 90% on export invoices, the exporter has an improved cash flow and his liquidity improves markedly.

• He can pay invoices in the country locally.
• He deals with the local agency, i.e. the Import Factor.
• Minimum documentation required.
• The cost of Letters of Credit and delay on account of LC’s are eliminated. All communication is in his own language.

ADVANTAGES OF EXPORT FACTORING VIS-À-VIS OTHER PAYMENT OPTIONS

There are other payment options such as Letter of Credit, Documents against Acceptance (DA), Documents against payment (DP) and Advance payments. However all these options have shortcomings such as the cost and delay involved in LC’s , no guaranteed payment in respect of DA bill and buyer not being able to satisfy himself on the quality of products before making payments in respect of DP bill. The two-factor system provides collection services and credit protection and also credit facilities to buyers on open account terms. Thus this system is superior compared to other payment options available to an exporter.