Factoring and invoice discounting

Export factoring

Guide

Some factoring companies offer a facility for the financing of international sales. They will typically work with a partner abroad who will be responsible for the collection of payment in the country to which you export. The services of a local agent will prevent any problems that could arise because of differences in laws, customs, language and time differences.

In terms of credit limits and process, there is no material difference between local and international factoring.

Some factors will offer you the choice of being paid in sterling or in another currency. You should carefully evaluate which is to your advantage. If your customer insists on being invoiced in their country's currency, consider investing in protection against currency fluctuations. Factors may approve a lower level of prepayment for export invoices than for local sales.

Requirements for export factoring

  • You normally only need to have an annual turnover of at least £100,000. This can include domestic sales.
  • Companies based in the European Union (EU) can still factor debts owed from other EU countries if sales within that country are relatively small.
  • Outside the EU higher sales to a single country will be required. For the USA annual sales of £500,000 will typically be necessary.

Export factors will usually charge more if the volume of sales is low.

Features of export factoring

  • You can choose to invoice in one currency and be paid in another. Many customers prefer to be invoiced in their own currency.
  • You can be protected against currency fluctuations.
  • The cost of export factoring is usually slightly higher than the cost of domestic factoring, but less than the cost of export finance.
  • You can minimise the bad debt risk by purchasing credit protection. Most factors insist on this.