Top 5 Export Factoring Myths Every Exporter Should Stop Believing

In the fast-paced world of international trade, it is important that exporters have a consistent source of cash flow to survive and grow. Export factoring has been a beneficial way to help exporters turn unpaid invoices into instant cash. However, despite this benefit, many exporters are reluctant to use export factoring due to existing myths that surround it and the service itself. In this guide, we debunk the 5 most common myths surrounding export factoring so you can see how export factoring can support your business internationally by providing cash flow, lowering risk, and giving you peace of mind when dealing with overseas customers. 

What is Export Factoring?

Export Factoring is where an exporter sells their receivables (invoices raised against buyers in overseas markets) to a third-party factoring company. Exporters can access funds immediately, getting a significant portion of the invoice value paid up front by the factor— there are no more long waits for payment. The factoring company is then tasked with collecting payment from the buyers, managing credit risk, and collecting as appropriate for international export factoring. There are two types of export factoring:

Recourse Factoring: The exporter assumes some risk and might need to repay some of the value if the buyer defaults. 

Non-recourse Factoring: The factoring company takes on the buyer’s credit risk. This is usually a more expensive service than recourse factoring. 

Advantages of Export Credit for Exporters

Export finance factoring offers a definitive series of strategic advantages. A few of them are as follows:

• Immediate Cash Flow: Exporters get access to cash immediately (generally 80-90% of the invoice value), unlike waiting for payment from buyers (generally on terms of 30-120 days). Exporters can utilize this cash inflow to invest in growth opportunities.
• Credit Protection and Risk Reduction: Key aspects of risk include buyer default, political risk, and currency issues. Invoice factoring for exports provides credit protection as part of its service,  thereby removing the exporter from the risks of non-payment.
• Preserve Equity: Since factoring is a sale of receivables, it is not treated as debt on the exporter’s balance sheet. This allows the exporter to maintain equity for healthy ratios and creditworthiness. 
• Outsource Receivables Management: Many export factoring companies also handle invoice collections, credit rights, and protections. This allows the exporter more time to operate the business, improve collections, and reduce the time and energy spent on administrative tasks.

Top 5 Myths About Export Factoring Debunked

Here are some important myths, along with export factoring facts to help exporters make informed choices: 

Myth 1: Export Factoring is Only for Companies That are Distressed

Misconception: Invoice factoring export is only used by companies that are in distress, as it implies that they have liquidity issues.

Fact: Export factoring is a cash management tool used to proactively manage cash by healthy companies, both small and large. Export finance factoring helps businesses improve cash flow by getting paid sooner, allowing them to reinvest, take bigger orders, and negotiate better rates with suppliers. The use of factoring reflects more about strategic financial planning than it does about taking on a distressed financing option.

Myth 2: Export Factoring is Expensive and Erodes Profit Margins

Misconception: International export factoring is seen as quite pricey, with factoring fees and interest that can take a chunk out of overall profits.

Fact: Factoring fees exist but are low, and furthermore, export invoice factoring allows for the inclusion of services such as credit risk protection, collection management, and other negotiating services. Timely liquidity also assists exporters in avoiding late penalties on invoice payments, gaining discounts from suppliers, and seizing growth opportunities to extend the impact of their present momentum of success.

Myth 3: Export Factoring is Grounding Our Customer Relationship

Misconception: Engaging technology within the context of factoring and receivables management results in the loss of control over accounts receivable and distant customer relationships.

Fact: Professional export factoring companies maintain the exporter’s brand representation and protect confidentiality. The exporter maintains control over all communications, while the factor deals with the payment collection process in a simple, discreet, and respectful manner. Export factoring will give your company more time to devote to expanding your success and improving relationships with buyers.

Myth 4: Export Factoring is for Multi-Nationals Only

Misconception: Export factoring is for large, multinationals only.

Fact: There are many factoring companies active in the small and medium enterprise (SME) segment of the economy with a focus on developing factoring solutions tailored specifically for small and medium enterprises. Factoring provides SMEs with a viable, flexible breakdown of options in trade finance compared to secured bank finance, and builds more opportunity-rich operating environments in global markets. This disproves one of the more persistent export factoring myths.

Myth 5: Export Factoring is Complicated and Time-Consuming

Misconception: Export factoring is an involved, slow, and tedious process that is mostly paperwork.

Fact: Exporters now can access technology-driven invoice factoring platforms that take away the trouble of application, approval, and finally funding as a source of finance. The digital application process makes immediate funding a reality through automated credit assessments. This enables exporters to receive funds quickly and for them to incorporate export factoring into their financing operations almost seamlessly.  

Credlix: Redefining Export Finance Factoring for Global Growth

Credlix is a leading fintech platform that focuses on embedded and bespoke supply chain finance, purchase order financing, and export invoice factoring. It has a strong digital service platform and global network reach. It offers exporters: 

• Provides up to 90% financing on verified export invoices and purchase orders to access export factoring cash flow quickly. 
• Customizes financing solutions based on earning potential and risk, while designing the best solution given various business structures and personal circumstances. 
• Focuses on empowering exporters to achieve cash flow productivity, reduce credit risks, and grow their export business with confidence by overcoming export factoring myths.
• Transparency in pricing with competitive rates without the need for collateral makes for financing that is simple and understandable. 

Unlocking the Power of Export Factoring

Export factoring is more than simply performing an alternative to factoring; it represents a strategic financial service available to exporters to help rectify low or inadequate capital structures during initial export development phases, mitigate international trade risks, and increase global competitiveness. By utilizing new-age service providers such as Credlix, exporters can benefit from flexible and efficient funding models for today’s complex and fast-moving trading structures. This puts many export factoring myths to rest and highlights the real value of invoice factoring export.