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Export Factoring

What is EXPORT FACTORING?

Export factoring means purchase, funding, management and collection of short term accounts receivable based on goods and services provided to foreign buyers.

Goods are delivered on open account credit terms without securing by any payment instrument. To ensure prevention of financial loss caused by buyers´ insolvency, export factoring can be handled with insurance or by two factors system.

In case of two factors system, our company as an FCI (Factors Chain International) member uses credit risk protection up to 100% of account receivable through a factoring company in buyer’s country.

Export factoring with insurance provides the clients – suppliers with a guarantee against buyers’ insolvency up to the amount of determined insurance limit. In case of insurance event the client receives 85% of the account receivable value; the remaining 15% represents exporter’s participation on the loss.

EXPORT FACTORING SYSTEM FACTOR–FACTOR Principle

  1. Factoring KB concludes an export factoring agreement with the supplier (exporter).
  2. Supplier (Factoring KB client) provides goods to his buyer abroad including an invoice which contains assignment clause informing the buyer that respective account receivable is assigned to an Import Factor in the buyer’s country.
  3. Supplier assigns the account receivable to Factoring KB; Factoring KB assigns the account receivable further to the Import Factor in buyer’s country.
  4. Factoring KB pays the advance, usually in the amount of 70–90%, to the supplier.
  5. Buyer pays the account receivable to the Import Factor’s account in the buyer’s country.
  6. Import Factor remits the payment to Factoring KB account.
  7. The account receivable account is cleared with the supplier upon payment receipt.

In case the account receivable is not paid within the period of 90 days after maturity due to the buyer’s insolvency, the account receivable is paid by the Import Factor up to the agreed limit (credit cover).

Export factoring principle

EXPORT FACTORING WITH INSURANCE Principle

  1. Factoring KB concludes an export factoring agreement with the supplier (exporter).
  2. Supplier (Factoring KB klient) provides goods to his buyer abroad.
  3. Supplier assigns account receivable (invoice with assignment clause) with the necessary documentation to the factor.
  4. Factor provides the client with advance and reports the account receivable to the insurance company.
  5. Buyer pays the invoice amount to the factor’s account.
  6. Factor pays the remaining invoice amount reduced by agreed fees and interests to the supplier.

In case the account receivable is not paid in 90 days after the due date, the Factor reports an insurance event to the insurance company.

Export factoring principle with insurance

The EXPORT RECOURSE FACTORING corresponds with its domestic version.

Who can apply for EXPORT FACTORING?

  • trading or manufacturing companies or enterpreneurs, companies that deliver goods or provide services to most of the countries in the world
  • the deliveries are regular
  • accounts receivable are before their due date
  • goods are delivered on an open account credit term without securing by any bank instrument
  • there is no third-party right to the accounts receivable
  • there is a contractual relation between the supplier and the buyer
  • annual supply volume through factoring is usually over 10 million CZK

EXPORT FACTORING Advantages

  • risk protection up to 100% of the account receivable 
  • competitive advantage increase by providing goods on open credit terms up to 90 days (120 days in exceptional cases) without securing by a bank instrument such as letter of credit, banker’s guarantee, etc.
  • immediate draw of funds in the account receivable currency, usually 70–90% of the nominal invoice value
  • advance, usually up to 24 hours from receiving account receivable document (invoice, CMR declaration, delivery note confirmed by the buyer)
  • in case the client has an account with KB, transfer of funds is usually executed within 24 hours
  • planning specification and cash flow stabilization
  • factoring does not increase the company´s external sources – it is not a kind of a credit, it is an advance for the account receivable
  • account receivable management takeover by the Factor including collection and enforcement of debts – operating costs decrease
  • interests based on actual provided funds

Costs associated with EXPORT FACTORING

  1. Factoring fee: Includes costs charged by Import Factor or by Insurance Company for risk protection up to 100% or 85% of the account receivable plus costs connected with management and collection of assigned accounts receivable. It usually amounts to 0.6–1.1% of the account receivable value.
  2. Interest: Interest is charged on advances provided for assigned accounts receivable based on short term bank credit rates level.

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