Below are some of the most common questions asked by exporters. Factoring differs from country to country and indeed different factoring companies may handle certain issues in different ways. For more detailed answers to your questions please contact one of the FCI members in your own country.
A.: You should not be concerned about that. Factoring has become so well established that almost certainly your customers will already be dealing with a factor, either by using one themselves or through other suppliers that they have. During 2009 the total volume of business handled by factoring companies around the world was over 1300 billion EUR. Factoring is rapidly becoming the obvious business tool for growing companies.
A.: Factoring is a service industry and in order to survive it must offer excellent levels of service to clients. If we did not offer such levels of service, we would quickly lose our clients' business which would more than offset any small gain in interest income that we would generate through being slow to collect receivables. Secondly, we also take the risk of non payment of receivables. It is a well known fact that the longer a debt is outstanding the greater the chance there is that it will turn bad. We do not want to increase our risk in this way.
A.: Yes you can. Many exporters are doing this. It is especially useful in markets where open account terms are not so commonly used. The administration is simple and the financing and risk coverage are not affected.
A.: If all of your customers and potential customers are happy to provide L/C's, then carry on as you are. You will however find that more and more customers are becoming less interested in buying from suppliers that insist on L/C terms. They do not like the idea of having to commit part of their funding to supporting purchases made in this way. There is also considerably more administration required on their part if L/C's are used. If you want to expand your sales into these markets you must be able to offer more "buyer friendly" terms and that means open account or at least D/A terms. Factoring can help you offer such terms without reducing your security or affecting your financing.
A.: This depends upon how the customer pays. If he pays by cheque then we will be quicker because our correspondent will get local clearance and then transfer the funds to us by SWIFT. If the customer normally pays by bank transfer then it would be quicker to pay you direct. The key issue is that most customers need regular prompting for payment. We believe that our active local correspondent will, in many cases, be able to obtain payments more quickly from customers than our clients can. Issues such as language, time zones, legal systems and different cultures can make collecting in other countries very difficult.
A.: Factoring has expanded rapidly over the past thirty years and is now used in 67 countries. There are however still a number of countries where business conditions are too risky for a factor to operate. In such cases you may be well advised to insist your customer to open Letters of Credit.
A.: If a debt is disputed a resolution must be sought. This must involve the buyer and the seller. Factors can help but the two main parties to the sales contract must take the overall responsibility. As factors we are keen to get the dispute resolved quickly because as soon as a resolution has been achieved the debt is back on risk (provided it is within a given time limit). At this point the buyer's financial position may have deteriorated and the factor may therefore be at a much higher risk. The quick resolution of disputes is in everyone's interest, including the factors'.
A.: FCI has an agreed standard of 14 days maximum for a response. The speed however does vary from just two or three days to the fourteen day limit. It varies from country to country mainly because of the availability of information on buyers. In some areas such information is readily available, in others it takes time to collect it.
A.: Factoring is a unique combination of finance and services, the costs are therefore impossible to compare with bank finance or credit insurance companies. The package not only includes the finance, which is priced very competitively with bank finance, it also includes 100% credit protection on your approved customers and a full invoice collection service. The service fee that we charge is very reasonable when you consider the cost of chasing payments in other countries, the cost of a bad debt to the business and the loss of profit that might be sustained through not being able to finance your growth.
A.: We are unable to cover this. The risk coverage actually takes effect from the day the goods are shipped, the point at which an invoice can be raised. Pre-shipment risk coverage is available from some insurers but it can be quite expensive. It is only normally used by some businesses that have a long production time or where the products are highly specialised and would be difficult to resell to another customer if the original customer ceased to trade prior to the shipment of the goods.