Exporting has its own form of invoice discounting. It works pretty much on the same basis as normal factoring and invoice discounting. A big difference though is that invoice discounting in exporting is more expensive because of the higher risks associated with exporting. Also the lender refers to the invoices as bills of exchange and letters of credit.
of exchange are the documents outlining the agreement between the
exporting business, its overseas client, and their respective banks.
When the goods arrive at their destination, the exporter retains control
over them until his/her customer accepts the bill of exchange, which
means they are happy with the goods and agree to pay within the period
specified on the bill. Discounting of bills of exchange works as
follows: The bill of exchange must be accepted by the client, at this
point the lender will
provide you with the money – usually not more than 80% of the value of
the bill of exchange. In return you will be charged an administration
fee and interest on the money.
A letter of credit is a document detailing the export agreement, including payment terms. This is issued by the importer’s bank in the overseas country and paid out by a corresponding bank in South Africa. This happens once all documentary evidence has been submitted by the exporter, stating that the goods have been shipped as agreed. Once the letter of credit is “confirmed” by your local bank, it can be factored by the exporter in order to raise finance immediately.
Lenders dealing with discounting can be found in the international departments of the big 4 banks, as well as among independent export-logistics and administration firms, which normally specialise in a particular industry, such as wine, wheat or clothing.
Finfind provides its services free of charge to businesses seeking finance. Our primary purpose is to link SMEs with all the relevant finance providers and finance products that match their funding needs. As a matching service we are not required to be a registered finance provider as we do not loan money directly.