International Factoring: How do you manage your cash flow in the U.S. Export Market?

Global borders are vanishing daily. Thanks to international factoring and export financing, the clothes that you wear today were probably manufactured in China or another Asian country. Fluctuations in foreign currency exchange rates offer suppliers of goods competitive advantages in those markets that favor certain currencies. Today US companies, with a weaker dollar, can offer goods and services to foreign buyers at a very competitive price with a nice gross margin, as long as they have the export financing and international factoring to back them up. US exports are increasing and buyers want credit terms for their international trade finance. How do you manage your cash flow, export financing and credit exposure to this profitable market?

International Factoring can offer you immediate cash for your receivables and minimize your credit risk. Rather than have your client pay you cash against documents or by letters of credit, you can now offer credit terms and expand your sales. J&D Financial is one of a few numbers of factors nationwide that offers export financing service. A typical international trade finance transaction is structured as follows.

1. Credit Insurance – Are your buyers credit worthy? Only sell on credit terms to buyers who have an existing credit history file. A number of credit insurance companies have extensive pay and financial information on overseas buyers. These credit insurance companies will give you a predetermined line to sell against and insure you for this amount in the event of slow or non payment. Either you or J&D Financial can purchase credit insurance for your existing account debtors. Initial Premiums run from $3000 - $10,000 depending on the size and number of overseas account debtors. Contracts are usually based on sales where premium costs can vary for ¼% to 1 ¼% of the yearly sales.
   
   
2. Advance - Advance rates from the factor will vary between 70 to 80% of the face value of the invoice. Invoices, bills of lading and purchase orders are usually required to be funded. On your initial funding with a factor, usually a partial advance will be given and the balance when the buyer receives and accepts the goods. After you establish a track record full funding will occur upon shipment.
   
   
3. Carve outs with Existing Lenders – Most lenders usually will not fund against foreign receivables when they are part of an overall receivable package. An international factor can carve out these foreign receivables with the existing lender by using an Intercreditor agreement that stipulates the factor is in a first position on international accounts and the existing lender is in a first position on the domestic accounts. Most lenders are willing to entertain this arrangement because it keeps the client happy and also offers both lenders additional safeguards in the event there is a problem or default with the receivables.
   
   

In addition to factoring US exporters, J&D Financial also factors foreign companies selling to creditworthy US buyers. The above principles also apply to the foreign exporters with one important difference. When factoring a foreign company the US factor must be in a first position on the export receivables. This means that the foreign companies export receivables must not be encumbered, have liens or loans against those specific assets. Legal representation in the foreign country must be obtained to insure the receivables are free and clear. Also proper notification must be given in the foreign countries public registries to tell the world that the export receivables are encumbered by a foreign lender. Factoring laws vary from country to country from Mexico, where factoring is regulated by the Mexican Central Bank and lien filing requirements are quite formal, to Holland where the legal system does not recognize the transfer of a beneficial interest in a receivable.

Jonathan Carmel is President of J&D Financial (www.jdfinancial.com). J&D Financial factors both domestic and international receivables, offers purchase order financing and letter of credit funding... Mr. Carmel has been in the finance business for many years factoring hundreds of small to medium size businesses. Mr. Carmel holds advanced degrees from both Duke University (MBA) and the University of Michigan (MPH) and has written extensively in the finance/economics arena. He can be reached at jon@jdfinancial.com or at 305-893-0300 ext 216.