International factoring, also known as export factoring or cross-border factoring, is a financial service that provides a way for exporters to access working capital by selling their receivables at a discounted rate to a factoring company, which then manages the collection of the receivables from the importer.
The process of international factoring involves three parties: the exporter, the importer, and the factoring company. The exporter sells the goods to the importer and issues an invoice for payment. The exporter then sells the invoice to the factoring company at a discounted rate, typically between 70% to 90% of the face value of the invoice. The factoring company then manages the collection of the receivables from the importer and pays the exporter the balance of the invoice, less a fee for the factoring service.
International factoring provides several benefits to exporters, including improved cash flow, reduced credit risk, and increased sales. It also allows exporters to offer more flexible payment terms to their customers, which can help them compete more effectively in international markets.
However, international factoring also has some drawbacks, such as higher costs compared to domestic factoring and the risk of disputes between the exporter and importer over payment terms and quality of goods. Additionally, not all countries have established legal frameworks for international factoring, which can create uncertainty for exporters.
To address these issues, the International Factors Group (IFG) was established in 1963 as a global association of factoring companies to promote international factoring and establish best practices and standard documentation. The IFG has since been replaced by the Factors Chain International (FCI), which currently represents over 400 factoring companies in more than 90 countries.