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Posts Tagged ‘AR Factoring’

Export documents facilitate the easy access of goods from other countries and enable exporter to trade their own. Exporters need to know all the features of their products and importers must also be sure of what they are buying. Export documents are used to avoid misunderstandings between these two parties.

Some of export documents are used for commercial purposes like bills, notes and weight packing. There are also documents to guarantee the quality of what is being exported. Insurance documents certify what is covered by insurance. Bills of lading are examples of transport documents.

Let us now talk about some benefits and purposes of export documents.

Documentary credit forms are export documents that permit the seller to deliver the merchandise with the guarantee that the importer will give the payment at the arrival port, meeting certain criteria.

Export documents are generally irrevocable and confirmed, which means that they cannot be modified but with the consent of the parts involved. Additionally, these documents relieve the exporter from any worry about nonpayment.

We are now going to mention some information for you to get familiar with the different kinds of export documents: revocable, irrevocable, notified and confirmed.

Revocable. The banker may revoke its appointment before shipment of goods. The exporter retains a risk until it has shipped its goods.

Irrevocable on the other hand, are the opposite from revocable documents. The exporter is guaranteed the transfer of the funds and any modifications to the contract must be approved by all parties.

Notified: the banker of the importer is the only one to be held responsible. The exporter is then hedged against the risk, but it is not protected in the event of political risk, catastrophic or non-transfer.

Confirmed, where the commitment of the banker of the importer is supported by a banker in the country of the exporter. The exporter must fully respect its obligations and it is guaranteed to be paid.

Some of the risks that exporters face are related to three issues: commerce, countries, and exchange rates. Most exporters are vulnerable to importers no paying. Additionally, when they go into another country they do not know the situation of that country is a risk in the political and natural areas. An exporter may also lose its money due to the changes in currency. Export documents provide tools for this not to happen.

Another term for Accounts Receivable Factoring is Invoice Factoring, the terms are essentially interchangeable.

When you evaluate the statistics of the number of days your invoices are waiting to be paid and how many are over due. This is simply data about the likelihood of collections. It has nothing to do with sales and how to increase sales.

Do you consider a large Accounts Receivable as a bad thing? Most people do. To determine if this is a bad thing, or good, it will depend on how the Accounts Receivable is made up. Here is an example.

If you have an abundance of Inventory and you are nearing the end of your season for a particular type of goods. You will have to pay for warehouse space for the next several months until the season comes back. You can have an opportunity to sell a large portion of your goods at a discount and clear out your warehouse. What would you do?

If it is a new customer and you have never dealt with them before, you will review their credit. You come to the expectation that it will take a few months to collect your invoice. Will you accept the order from the client?

If you look at the opportunity strictly from a credit perspective, you would likely not take the order.

However if you consider the cost of the goods sitting until next year, you may think otherwise. To make the deal even better, use Invoice Factoring so you can clean out your warehouse and collect on the payment within 48 hours. True the financing will cost you a few points, but in the end, what would you have otherwise? Either goods sitting in the warehouse costing money or cash in your hand using Invoice FactoringWhich do you prefer?

This is just some brief comments based on an Invoice Factoring System. In many ways it is considered the latest revolution in the management of credit and collection and would certainly assist many companies that are facing Working Capital constraints.

Besides the facts that this can stimulate new sales, you can also help out your current customer base to grow this opportunity. As you are aware, it is much more costly to originate new clients than it is to keep existing relationships in tact. Not only will Invoice Factoring help you with this, but it will off set Cashflow constraints when invoices do get a bit extended. Speak to your Commercial Finance Broker about the programs that best fit your business.