GROWING SME EXPORT BUSINESS IN NIGERIA 3A

EXPORT FACTORING AND INVOICE DISCOUNTING

Export Factoring.

Export factoring is a complete financial package that combines export working capital financing, credit protection; foreign accounts receivable bookkeeping, and collection services. A factoring house, or factor, is a bank or specialized financial firm that performs financing through the purchase of invoices or accounts receivable. Export factoring is offered under an agreement between the factor and exporter, in which the factor purchases the exporter’s short-term foreign accounts receivable for cash at a discount from the face value, normally without recourse. It also assumes the risk on the ability of the foreign buyer to pay, and handles collections on the receivables. Thus, by virtually eliminating the risk of nonpayment by foreign buyers, factoring allows the exporter to offer open accounts and documentary collection payment terms, improves liquidity position, and boosts competitiveness in the global marketplace.

 Advantages

• Improves cash flow.
• Reduces operating expenses.
• Expands working capital.
• Provides quick alternative source of financing.
• Funds business growth/expansion without increased bank debt or selling equity.
• Provides immediate access to working capital.
• Enables company to increases sales and profitability.

Invoice discounting is a means of raising money using invoiced debtors as security; it differs from factoring in that the borrower retains control of dealing with customers and collecting payments. The fundamental difference between invoice discounting and factoring is that the borrower is responsible for the collection of cash from your debtors. The payments are received into a nominee bank account which is administered by the invoice discounter. Invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid. To do this, the business borrows a percentage of the value of its sales ledger from a finance company, effectively using the unpaid sales invoices as collateral for the borrowing. This leads directly to one advantage of invoice discounting over factoring: it is possible to keep the use of invoice discounting confidential (conceal it from customers). Because of this, lenders offering invoice discounting will want to satisfy themselves that the borrower is able to handle the process adequately, with sufficiently good staff and processes.

Advantages

§  By receiving cash as soon as a sales invoice is raised, the cash flow and working capital position of the business will improved.

§  The business will only pay interest on the funds that it borrows, in a similar way to an overdraft, which makes it more flexible than debt factoring.

§  Invoice financing can be arranged confidentially, so that customers and suppliers are unaware that the business is borrowing against sales invoices before payment is receive