Rapid changes in the business process are creating exciting opportunities for businesses to sell their products globally. In order to be competitive. Australian Companies need to offer flexible terms of trade to their customers. Export Factoring facilities provide a unique package of services designed to ease the problems of export sales on open account. By Garry Mills.
Globalisation is a word that is commonly heard in business these days. Improvements in transport and information technology are breaking down the traditional borders which defined market boundaries.

Suddenly, with very little investment in technology, the potential market is not only your city or state or country, but customers in most countries of the world. The potential is enormous if approached correctly. However, an element of caution is required.The two major risks in dealing with overseas customers are:

Credit Risk – the possibility that a debtor will not make payment for goods shipped to them. Although this is also a risk for domestic sales, your ability to respond to a slow local payer is much greater for an overseas customer. It’s relatively easy to communicate with the local customer, establish a repayment arrangement or, if necessary, commence legal action to recover the debt. However when the customer operates in a different time zone, a different language or a different legal environment, your usual approach may not be appropriate. The value of the debt may not justify the cost of an overseas visit or even appointing a solicitor in the debtor’s country.

Cashflow Problems – selling to overseas customers on terms of trade can stretch a business’ cashflow, particularly if these sales are proving rapid growth in the levels of debtors. Overseas customers will often require longer terms of trade to take account of shipping delays and higher stock levels may be necessary to service large overseas orders.

One of the solutions to both risks is to ensure payment is received before goods are shipped to the customer. However, restrictive terms of trade will often result in the order being lost, particularly if there are other suppliers around the world willing to offer open account terms "Globalisation" does bring opportunities, but it also provides competition!
 

Export Factoring

An Export Factoring facility provides the solution to the main export risks and enables the exporter to offer competitive terms of trade to customers.

Through an international network of factoring companies called Factors Chain International (FCI), 100 per cent credit protection against overseas customers can be arranged, together with a collection service provided by the FCI member in the customer’s country. The facility is established through an Australian factoring company which becomes the central contact point, although it is likely that FCI members in many countries will be involved in assessing credit risks and providing collection services.

In addition, the exporter has access to a finance facility of up to 80 per cent of the value of outstanding debtors to assist their cashflow. Factoring facilities traditionally operate without a fixed limit, which means that rapid growth in working capital requirements do not necessitate constant renegotiation of facilities. Interest is charged on the funds utilised at rates which are very competitive with bank overdrafts.

Export Factoring facilities are suitable for companies with a spread of debtors, no matter whether in a single country or a number of countries. Sales are made on open-account terms of trade up to 90 days. Invoices can be accepted in all major currencies. Sales made on a consignment or "sale of return" basis, and sales made to associated entities, are not suitable for factoring arrangements.

In most of our export markets, factoring is used much more widely than in Australia. According to FCI statistics for 1998, worldwide factoring volume was $US526 billion and international factoring comprised $US31 billion of this.

Members of the FCI network offer domestic and international factoring services in approximately 50 countries across all five continents. Although factoring has traditionally been dominated by European and American companies, many of the Asian countries are developing a strong factoring industry. In 1998 the Japanese industry volume exceeded $US45 billion, and in Taiwan the growth of export factoring in recent years has been significant.

In Australia, the factoring industry has shown impressive growth in recent years. Industry statistics indicate that the 1998 volume was $6.6 billion, an increase of 28 per cent on the previous year. As more and more businesses move away from fixed-limit banking facilities to the flexible cash flow available from factoring, the growth of the industry is expected to be substantial in the next few years.