Understanding Invoice Financing and Export Factoring

Invoice Financing and Export Factoring

Invoice financing and export factoring are some of the major ways of receiving funding for your business. As a business owner, you will require funding during multiple stages of growth and development. Sometimes, securing funding is easy and hassle-free whereas sometimes it is a daunting task. You might not be able to convince your investors and the banks might not believe in your promise. Therefore, understanding invoice financing and export factoring will help you gain insights on receiving funding depending on your business needs.

 

Invoice Financing

Invoice financing refers to the selling of invoices by businesses to third parties after the sales of products or services. The businesses will receive immediate cash flow in exchange for the payments they are due to receive. This is because businesses tend to set a certain deadline for customers for receiving payments. However, since operations like the purchase of assets, paying employees, rent, and utilities require immediate and steady cash flow, businesses tend to use this method.

The major advantages of invoice financing can be listed as follows:

• Businesses receive an immediate cash flow which is mandatory to continue operations.
• It is easier to obtain than financing from banks and requires less paperwork.
• Most of the collection work is done by the third-party financing company, which means you save on valuable time.

Similarly, the major disadvantages of invoice financing are:

• The financing company may collect a high amount of fees and force you into some sorts of obligations and contracts.

There are two major types of invoice financing and they are:

Invoice Factoring

In this practice, the third-party financier, also known as a factor, will take control of the accounts receivables of the business it funds. When the business turns their invoices to the financier, they receive a certain percentage of the total invoice value. Finally, when the customer pays for the products and services, the business gets the remaining amount with a service fee deduction.

Invoice Discounting

In this practice, the business itself will take control of the accounts receivables.

Likewise, the business receives a percentage of the value of the invoice that is agreed upon. When the customer pays, the remaining amount goes to the business and the rest to the financier. One of the key benefits of this method is that the business gets to choose which invoices to use for discounts. Typically, the one with a large amount and a long payback period is suitable for invoice discounting.

 

Export Factoring

The concept of invoice financing and export factoring are quite similar. The only difference is that export factoring involves international transactions which arise when the business deals with customers overseas. Export factoring is quite difficult and involves a lot of paperwork as compared to invoice financing.

The major steps involved in export factoring are:

• The export factor takes control of your accounts receivable.
• When the export factor receives the invoice from you, they send a percentage of the total amount specified,
• The invoice is then assigned to the import factor of the buyer’s respective country. The import factor collects the amount in that country and sends it to the export factor.
• The export factor will release the remaining amount to your company upon receiving the payment from the import factor. There might be a deduction for service fees.

 

How Can We Help?

We learned the concepts of invoice financing and export factoring and how they are useful for the smooth running of your business.

3E Accounting can provide world-class accounting services in Hong Kong who can advise and assist you in invoice financing and export factoring. Our professionals have unmatched expertise and years of experience in this field. This allows them to build solutions that are the best suited for your business.

Even though our services are top-quality, they are still very much affordable. Moreover, our guaranteed satisfaction is backed by thousands of our customers worldwide.

Contact us for more information.