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The majority of large manufacturers engage the factoring services of export factors that participate in global networks. Members of these networks work through other factoring members located in the countries and regions where their manufacturer clients' products are being distributed and sold. This practice is a great benefit for high sales rates of these exported goods because local network members, as import factors, serve as the exporter's financial spokespersons. Since they are fluent in the local languages where product sales are being transacted, they also are well-informed concerning the business standing and credibility of local buyers. This arrangement is reassuring to the product manufacturer who is confident that overseas sales of products are being handled by competent, trustworthy sales partners. The import factor, in conjunction with the export factor, will also assume management of the manufacturer's collections and take responsibility for all associated credit risk.
What major services are provided to manufacturers by international factoring agents?
The major services offered to manufacturers by international factoring companies include:
• Management of Receivables. – An assigned A/R manager oversees collections activity for client companies, including all accounting and reporting services. When a seller transfers or assigns orders to the factoring agent, the buyer then makes payment directly to the import factor. The export factoring company assumes responsibility of order payment once any costs from cancellations, damaged shipments and other problems are deducted.
• Credit Coverage. – Global factoring agents will provide credit protection for receivables. They will also issue lines of credit for qualifying manufacturers engaged in exporting. Once orders are approved, payment is made by the purchaser to the factor. The factor then pays the seller, after deducting fees, expenses and commissions. If, however, an order does not meet approval for factoring services, the product sale can still be made between seller and buyer. However, payment collection for the sale is no longer the responsibility of the export factor.
• Receivables Financing. – Export factoring agents lend amounts based on receivables values. When a global manufacturer applies to a factor for such funding, approval for lending is normally based on receivables value, working capital levels and other required criteria. Most manufacturers consult several factors prior to making an application for funding since interest rates for services can vary. In addition, a typical receivables loan amount is often equal to no more than 90 percent of the receivables value, so manufacturers look for factors giving the highest monetary returns.
What types of manufacturers make regular use of factoring agents and services?
Typical samplings of U.S. manufacturing companies that export products for sale on international markets with the assistance of factoring agents usually have annual sales totaling between $5 million and $200 million. Often the exporting minimum sales amount for engaging the services of an export factor is $5 million. Currently, global factoring is also being employed as a financing option for managing accounts records of Fortune 1000 businesses and other large corporate entities engaged in international business. Many large exporters of products or services now realize what a powerful financial aid global factoring can be. With the aid of factoring, exporters can join many competitive international markets and greatly increase their business clients and buyers. They can also gain many valuable contacts and associates. In addition, they can increase global business activity and profits at no added risk.
Many large international manufacturers and business service providers engage the expert services of global factoring companies for A/R financing and to best facilitate their worldwide product sales. In addition, they benefit from the management of receivables collections and credit monitoring services of customer accounts by these factors. Another very important function of these factors is their ability to operate through a global factoring network that facilitates sales transactions worldwide in numerous different languages and currencies.