Can I Use Invoice Factoring For Overseas Customers?

22 Sep Can I Use Invoice Factoring For Overseas Customers?

Domestic invoice factoring can be easily used to finance overseas customers, referred to as export factoring; there are a few things you need to know first.

One of the biggest fears that a business owner will face when selling overseas is offering credit terms and the impact on it will have on cash flow.

There are enough challenges dealing with local customers/debtors without negotiating with other countries and to add to this you’ll need to allow for foreign currency (FX) risk. Ensuring you have sufficient margins is very crucial to staying profitable. Careful consideration must be given to all the costs involved before you embark on such a romantic idea of international sales, I’ll go over this in another post, for now let’s focus on how to finance your transaction.

A quick recap on how factoring works? (Skip this if you already know)

At its heart the process is pretty simple. Finance is provided to companies that sell on credit terms. Rather than you constantly waiting for your customers to pay invoices, it brings your cash flow forward. Money is advanced to your account upfront against your fresh or outstanding receivables on a daily, weekly or monthly basis:

You receive an order for a product or service
You raise the invoice
You submit this to the invoice factoring company
You receive 80% of it’s value
Your customer pays the invoice and balance is remitted to you

The factoring facility operates like a line of credit attached to your sales; you receive an account that you can submit invoices to for funding.

I only sell to overseas customers; do I still qualify?

Selling to overseas countries is risky, recovering money from debtors is a very expensive process and lenders are always looking to cover this risk with other assets within your business. The reality is in Australia, financiers are going to want property security to back up a finance approval if you sell purely to other countries and have no domestic sales.

I sell within Australia and overseas, what are my options?

If like most SME’s you are already selling within Australia, your chances of an approval are significantly increased. Financiers are a lot more comfortable knowing that you have a local presence, allowing you to continue to generate income aside from your overseas customer orders.

The invoice factoring company will require you to finance your local invoices as well as your overseas invoices. They are both very similar in how they operate, except for how they handle foreign currency. Most financiers will convert the currency back into Australian dollars to avoid currency risk, however some also will hold accounts in the currency you are trading in. You will not be required to offer any property as security and you may still qualify even if your credit isn’t so good, simply because they are basing the funding purely on the strength of your debtor/customer quality.

In almost every situation, financiers will only finance invoices you raise to OECD countries, usually due to trade credit insurance requirements. View a list of approved locations.

Loandesk has access to these funders; complete your profile and we’ll match you to the right lender. 


About Leigh Dunsford

I am a small business finance & lending columnist at Loandesk, teaching entrepreneurs what loan options are available to them in Australia, explaining the differences between each loan type & how to position themselves for the best chance of getting approved for their perfect loan. My thoughts have been published on Startupsmart, CEO Magazine, Smartcompany & more...

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