Three Things to Know About Trade Finance Factoring

Three Things to Know About Trade Finance Factoring

Trade finance factoring is a way to turn your open invoices into cash when you need it. One of the difficulties many exporters experience is buyer nonpayment. In some situations, sellers must simply wait to collect on open invoices. Your organization may send requests for payment, subsequent notices, and other such methods for obtaining payment on open invoices, but ultimately sellers are at the mercy of buyers once the goods have left the harbor.

How Does Factoring Work?

Factoring eliminates the need to wait for buyer repayment on open invoices. A third party, or factor, will essentially buy the debt from the open invoices, and then the factor will pursue repayment from the buyer. This way, the exporter receives payment more quickly and the revenue from those open invoices can help expand the business. The tradeoff is that the factor purchases the invoices at a fraction of the total value. The exporter may not get the full amount of the invoice, but he or she will get some funds more quickly than they would otherwise receive them.

Benefits of Factoring

Other forms of trade finance require you to pay back what you borrow, as with any other loan. You sacrifice a percentage of the total invoice value of the goods being exported to the factor in exchange for immediate access to your funds. This is an invaluable tool for several reasons:

  • Protect your cash flow. When your revenue is locked in open invoices, you can’t use those funds to improve your business. Factoring frees up funds more quickly and allows you to put them to use immediately.
  • Mitigate administrative operations. Tracking down buyers, sending requests for payments, and keeping tabs on customer accounts can eat up a lot of time and labor. Factoring eliminates many administrative tasks that take up time you could spend on more-important aspects of your business.
  • Simple process. Factoring is a straightforward process. Once you connect with a reputable factoring service, you could have your funds in as little as 24 hours.

For more information about trade finance factoring, reach out to Drake Finance, one of the United States’ most established and successful factors for American exporters.

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