Businesses dealing with international clients come across their fair share of challenges. Because of the difference in time and language, companies face a number of hurdles that can cause severe strain on their business if they are not handled efficiently on time. With a number of international clients to cater to, businesses need a financial resource to provide them with the required funds to conduct cross-world commerce.
While there are unlimited benefits of international trade, there are some common hurdles that tend to hinder the efficiency of your business operations. Regardless of the business size and clientele, being an international trader means that you would have to deal with longer payment terms and account trade. This means that the invoices that are dated for this month might not be received until weeks, or even months, later. The delayed accounts receivable is what can cause problems for your business as you might run out of cash on-hand.
That’s where international factoring can help you. This resource can act as export insurance and enable you to take the risk of international trade with peace of mind. As an exporter, you can hire factors, who will guarantee the import price of your goods. You can take advantage of this opportunity and ensure that the factor is responsible for securing your payment from the importer.
Advantages of International Factoring
The system helps in lowering the credit risk, but that’s not the only benefit that international factoring services have to offer. It can help provide businesses crucial information about their current foreign clients and even helps them gain insight into the prospects. By contacting the factoring company in the importer’s country, it ensures that the business is carried out in a secure atmosphere. With timely cash flow, your business can flourish and get the necessary protection against bad debts. Even if your foreign customers become insolvent, the international factoring system would ensure that your business is protected.
Types of International Factoring
There are a total of four types of international factoring that can help advance international businesses. These systems are a helpful tool for both importers and exporters, ensuring that all payments are secure and both the parties can engage in business with peace of mind.
Two Factor System
Though the name may suggest otherwise, there are actually four parties involved in this two factor factoring system. They are the exporter, the importer and factoring companies in the countries of both parties. Since the system provides great benefits to both parties, this is the most preferred type of international factoring. The agreement is set to ensure that both parties have a say in the proceedings.
Single Factor System
The factoring companies from both the exporter and importer get into an agreement where it is decided that only one factoring company will perform all the functions. The signed agreement is a surety that mutual benefits of both the parties will be considered no matter who makes the decisions.
Direct Import Factoring System
Under this system, the exporter directly deals with the factoring company of the importer, thus eliminating the time wasted in dealing with the importer. Through direct contact with the importer’s factor, the exporter can get the required information directly, without the usual hurdles.
Direct Export Factoring System
As the name suggests, this type of factoring ensures that only the export factor has the right to make the decisions. Whatever functions take place during the process are overseen by the export company’s factor. The best thing about this factor is that it helps to lower the costs incurred.
IFA Code of Ethics
There are certain rules and regulations that all members of the International Factoring Association (IFA) must abide by.
- All members shall abide by all local, state, and federal laws.
- All members shall subscribe to the truth in advertising standards.
- No member shall engage in any activity constituting or leading up to a conflict of interest.
- All members will facilitate the move from one factor to another, should a client wish to make a change.
- All members shall utilize and maintain accurate accounting systems to track each client’s transactions.
- All members are required to pay IFA invoices when due. Refusal to pay will result in membership termination.
- All members will aspire to the highest level of professional ethics, as generally expected by the business community.
- All members shall treat all persons fairly and equally, regardless of race, religion, gender, disability, age or national origin.
- All members shall be honest and thorough in all business dealings, including dealings with clients, client’s customers, lenders, and others in our industry.
- All members will aspire to the highest level of industry competence through continued education and by sharing ideas and experiences with other IFA members.
- All members shall treat all client information as confidential. This information shall not be disclosed to any person or entity, other than at the client’s direction or by court order.
- All members shall assist one another in all industry aspects, except for proprietary information. Members shall not use or take advantage of information which may have been obtained in the process.
- All members shall communicate non-confidential information relating to another member’s violation of this Code of Ethics to the IFA Advisory Board. In the event of such a violation, the member will be required to change their behavior.
- All members shall strive to promote the International Factoring Association and its goals and objectives, as well as the commercial finance industry as a whole, through educational venues, public relations opportunities, and member advertising media.
If your business also needs insurance against the challenges of international trade, it’s time you start considering international factoring as a helping agent.