Single Invoice Discounting: A Viable Alternative for Exporters

All Exporters would probably agree that if their international business were 100 percent “cash on delivery”, they would have all the cash that they need to fuel their overseas expansion program. But it’s not so simple.

Overseas Customers expect terms on their purchases, usually 30 days but more often 45 to 60 days or longer. This problem is not helped by the reluctance of many exporters, who have to compete globally, to call and ask for payment, even overdue payments.

Relief from this often-crippling cycle can often be found in a new financial service known as “single invoice discounting” or ‘cross border spot factoring’

This form of alternative financing is a very simple ‘use it as you need it’ facility for companies who are selling to overseas customers on open account terms. In these circumstances a single invoice can be discounted on a one off basis effectively turning each transaction into a COD sale.  The service is quick and straightforward with a minimum of paperwork. As an invoice is produced and the goods or services delivered, the invoice discounter purchases the invoice and releases cash to the company, often within a matter of hours. The company and the invoice discounter work together in terms of the administration and collection of the purchased receivable, ensuring there is no disruption in the supplier-customer relationship

There is no long term commitments or contracts, no upfront fees or application charges and no minimum or maximum invoice value. The cost for each transaction is simply the difference between the invoice value and the discounted purchase price. It can be used as a complement to existing banking arrangements or as a stop gap for potential customers who, for various reasons, may not currently meet the banks’ funding criteria.

Although well established as an alternative finance source for domestic business, single invoice discounting has not previously been available to international traders. This is largely due to the intricacies in establishing ‘counterparty’ in the customers country to share the risk. As a result, those companies that do offer this service tend to limit its availability to territories where they have an overseas presence generally USA, Canada, Australia, New Zealand and some European and South American countries.

However, as the benefits of this type of alternative financing become more apparent expect more areas to be included in the future

Topics: Export Planning
Export Action Plan