By Bill Ezzo
When I attended my first Factors Chain International meeting in Spitzingsee, Germany in 1980, I joined representatives from virtually every European country, Canada and the United States. The geographical mix of the delegates at the meeting mirrored the scope of the group at that time. The Edifactoring system (the communication system currently used by FCI members) had not yet been invented and all communications were made via fax or telex. Today the group has representative companies throughout the Americas, Asia, Europe, Australasia and Africa including Capital Business Credit (in the U.S. and China).
International factoring involves a relationship between the exporter of goods and services (the client), the client’s factor (the export factor), the foreign factor (the import factor) and the importer (the customer). Here is how it works:
• The export factor signs a Factoring Agreement with the exporter, which usually covers the client’s domestic and foreign sales.
• The client’s sales to its foreign customers are referred by the export factor to a correspondent (the import factor) located in the customer’s country for credit approval, ledgering and collection.
• The import factor remits payment after receipt from the customer.
• The export factor will then finance its client’s accounts receivable and credit the client’s loan with funds received.
The international factoring procedure outlined above is an effective way of replacing the traditional methods of financing international trade (letters of credit and drafts against documents) with a more efficient financing technique. All of the services and benefits of factoring that the client receives on its domestic sales now become applicable to its foreign sales as well.
As the worldwide acceptance and growth of this international factoring concept over the years demonstrates, international factoring provides a simpler and more efficient way of doing business abroad.