Import debt factoring

Import debt factoring can be of 3 types:

  • Full book, (Ledger), factoring
  • Selective invoice discounting
  • Spot or single invoice finance

Factoring is a multi-billion £ industry and a key part of financing any type of business.

According to the UK’s leading industry body, the ABFA, UK businesses raised £22.2 Billion to finance day to day cash flow and strategic objectives.

Import businesses can use import debt factoring in the same way. Strategically to finance the purchase of imports, or more simply to finance the daily cash flow of the business.

We’ll consider both uses.

Import debt factoring – useful terminology:

Because debt factoring is such a large industry with many commercial finance lenders, the terminology used to “package” and market solutions has also grown.

The following terms are all used to describe one of the three forms of factoring stated above:

  • Invoice finance
  • Debt factoring
  • Invoice factoring
  • Invoice discounting
  • Receivables financing
  • Receivables factoring
  • Spot factoring
  • Single invoice finance
  • Asset based lending
  • Reverse factoring

As an independent, unbiased,  whole of market import finance Firm we have access to all forms of factoring and all lenders that would be relevant to your business and needs for import debt factoring.

There are also some important terms relating to how an import debt factoring solution would operate.

Disclosed Vs none Disclosed:

This relates to whether your debtor, (the business that owes you money against your invoice for goods or services provided), is informed that you have “factored” that invoice in return for an advance of funds.

As factoring was largely mis-sold following the last global financial crisis it has a reputation for being a “finance of last resort”.

Whilst this reputation is no longer valid, in our experience, an import business will prefer not to disclose it has factored a customers invoice.

Recourse Vs none Recourse:

The majority of import debt factoring solutions are based upon the repayment of the finance advanced when the import businesses debtor pays the invoice.

Recourse means if a debtor fails to pay then the factoring lender has recourse to the import business. The overdue invoice is returned to the importer and the importer has to repay the advance.

None recourse means that if the debtor fails to pay then the factoring lender does not have recourse to the importer and the import business will not have to repay the advance.

This is achieved by the factoring lender taking credit insurance on the debtor when funds are advanced and the insurance will underwrite the loss if the debtor fails to pay.

 

I’ll take a none-recourse, none-disclosed import debt factoring solution please” we hear you shout whilst reading this review of options.

Of course, but since the lender takes far more risk it is a far more expensive solution, and there are more things to consider.

Import debt factoring to finance the import purchase:

We’ll assume your import business has no current factoring solution in place.

The choice as to which type of import debt factoring solution you need will depend upon:

  • How large is your average current debtor book (ledger)?
  • How large are the average individual invoice debts within that book?
  • Are your debtors “large” credit worthy debtors that pay on time or is a high % of your book at 90+ days or overdue?
  • What is the average debtor repayment days?
  • What amount are you trying to raise to finance the import purchase? (large amounts tend to be more suited to import business loans or a revolving credit facility)
  • Is this a “one-off” single purchase for machinery or equipment? (consider import asset finance)
  • Is this a regular import trade?

Without taking you through our “Business first, funding second process” we can’t state which type of import debt factoring would be the right solution for your specific import business needs.

However, as a general observation from our dealings with many UK importers using factoring to purchase imported goods or services it’s either Full Book Factoring or Selective Invoice Discounting.

Rarely is there a single invoice in the ledger that can be factored to raise sufficient purchase funds.

Import debt factoring to raise finance after goods have arrived:

Again, we’ll assume your import business has no current factoring solution in place.

The choice as to which type of import debt factoring solution you need will depend upon:

  • Was there a purchase order for the goods or services imported?
  • Was that purchase order from one or a number of customers?
  • Will all the goods or services imported be covered by customer purchase orders?
  • Or will some or all of the goods imported be taken into stock to be used or re-sold over the next 30-120 days?
  • Is it a one off or regular import trade?
  • Type of import, finished goods, components, commodities, machinery, equipment or services

Without taking you through our “Business first, funding second process” we can’t state which type of import debt factoring would be the right solution for your specific import business needs.

However, as a general observation from our dealings with many UK import businesses, if:

  • There’s a single purchase order covering the import then single invoice finance
  • There are multiple purchase orders but again covering the entire import then single invoice finance or selective invoice discounting
  • The imported goods are for stock then selective invoice discounting or full book factoring

Import debt factoring- rates, costs, Pros & Cons:

For a full comparison of import debt factoring rates, costs, pros & cons please contact us for a free downloadable table.

In general terms:

Single Invoice Finance:
  • No contract
  • No on going fees or costs
  • Pay only when & if used and for the duration financed
  • High relative cost per factor event
  • Advance of up to 85% of the factored invoice value
Full Book Factoring:
  • Fixed contract period
  • On going costs and fees in addition to the interest on the advance
  • Low relative cost per factor event
  • Advance up to 95% of the factored invoice value
Selective Invoice Discounting:

Similar in many respects to Full Book Factoring but lower costs as only selected invoices from the ledger are factored and generally the import business staff are responsible for their own credit control.

Import debt factoring – what next?

We started Ashwood Partnerships as there are often many options to finance an import and import business. Import debt factoring is just one option to consider.

By bringing all options into one independent, whole of market, unbiased Firm focused totally on importers, we are able to provide all options for you to consider.

Contact us for a no obligation, informal chat about your import business and proposed import trade.