Alternative Methods in

Financing Exports and

Imports
1. Invoice Factoring and Accounts
Receivable Factoring
 Available to SMEs
  involves selling an invoice that is due at a later
time (typically 30, 60, or 90 days later) to a
factoring company who will advance you a
percentage of that invoice immediately (typically
80%). Once your customer pays the invoice, the
factoring company pays you the balance (20%) of
the invoice minus their fees. Their fees are known
as the factor rate.
  Invoicefactoring allows you to get a majority of your
invoice advanced to you so that you can cover the costs
associated with producing your product or service (labor,
materials, etc) without having to wait months for your
customer to pay the bill.
 Factoring also increases your competitiveness, especially
when exporting. It allows you to offer more generous net-
credit terms to your foreign customers because you know
that you can reliably turn an invoice into cash right away.
Qualifications for Accounts Receivable Factoring

Invoice factors place a lot of emphasis on the creditworthiness on your

trading partner. This means that even businesses with less than perfect
credit can factor their invoices as long as their partners have a solid
history of payment.
Importer
 Be in business 1+ year
 Be creditworthy
Exporter
 Invoices customer
 Offers customer short-term credit (credit terms)
 Customers are businesses or governments
2. Letter of Credit
  aguarantee of payment by an importer’s bank
made to the exporter
 Since a letter of credit is typically provided by a
bank that is local to the importer, that bank is in
a much better position to determine the
importer’s creditworthiness. And in most cases,
you will have no question of the bank’s ability to
pay.
3. Forfaiting
 A forfaiting arrangement will involve the exporter, the
exporter’s bank (forfaiter), the importer, and the importer’s
bank. The exporter will find a local bank that is willing to act as
a forfaiter before finalizing their deal with an importer. The
exporter’s bank will set their terms which the exporter will
then incorporate into their final deal with the importer (usually
incorporating the cost of forfaiting).
 The importer will then seek a letter of credit (or aval) from
their local (but internationally recognized) bank to guarantee
payment on the contract. At that point, the exporter delivers
the product or services and delivers specific documentation of
the delivery to their forfaiter who will then pay on the
contract. The forfaiter will then collect all owed money from
the importer as outlined by the contract.