For a business, selling products internationally offers tremendous growth potential. However, it comes with its own set of difficulties, particularly concerning cash flow and payment risks.
Singaporean businesses often face complexities in cross-border transactions that don’t arise in domestic dealings. Longer shipping times, negotiating various legal and regulatory frameworks, controlling volatile exchange rates, and adjusting to various payment methods are a few of these. In addition to creating uncertainty about whether payment will be received at all, these factors can cause major delays in receiving money.
At this point, export factoring turns into a very helpful financial tool for Singaporean businesses trying to break into or increase their market share abroad. By offering instant liquidity and, frequently, protection against buyer default, it directly assists them in addressing these innate issues with cash flow and payment risks. It is one types of factoring designed specifically for companies that sell goods or services to clients overseas. In essence, a Singaporean exporter sells its unpaid invoices, also known as receivables.
Here are the essential details of this factoring, including the benefits of factoring and how it operates.
Benefits of Export Factoring
Below are the benefits of export factoring.
- Improved Cash Flow
For a Singaporean exporter, one of the biggest wins is improved cash flow. When the exporter sells its invoices to an export factor, the exporter gets an upfront payment. This is usually a large part of the total value of the invoice, which is received quickly. Owing to this fast access to money, the company does not have to wait for potentially long international payment terms. Instead, it can immediately use that cash to invest in new products, chase new business opportunities, cover its daily running costs, and most importantly, manage its finances much better.
- International Expertise
Export factoring services providers often come with specialised knowledge in international trade. They are aware of the rules governing international trade, the standard procedures for handling cross-border payments. They have established procedures and networks to efficiently collect payments. They can operate in a variety of legal systems, time zones, and language barriers. Having access to these professionals can help a Singaporean exporter receive payments from overseas clients more quickly.
- Accounting and Administration Made Simpler
For Singaporean companies, using an export factor can dramatically reduce their administrative workload. By hiring the export factoring service providers, the company essentially hands over all the tedious parts of collecting money from overseas customers. This includes tracking invoices (keeping tabs on who owes what) and constantly following up on payments.
As a result, the company’s own employees are freed up from these time-consuming tasks. This means their internal teams can spend more time and energy on truly important things like developing new products, boosting sales, etc.
How Does Export Factoring Operate: A Guide for Exporters in Singapore?
Okay, after understanding why export factoring can be good or bad, let’s see how it actually works, step-by-step:
- Agreement:
To kick things off, the Singaporean business, known as the exporter, and the factoring company, referred to as the “factor,” enter into a formal agreement. This document lays out all the terms and conditions that will guide their partnership.
- Sales and Shipment:
The exporter continues with its regular operations, selling products or services to a customer located in another country. After the sale is finalized, the exporter sends an invoice (the bill) to the international customers.
- Assignment of the Invoice:
Instead of waiting for the foreign customer to pay, the exporter “sells” or “assigns” that unpaid invoice directly to the factoring company. It’s like the exporter hands over the right to collect that specific bill to the factor.
- Advance Payment:
A major benefit for the exporter occurs at this stage: the factoring company immediately provides an advance payment to the exporter. This advance typically represents a large portion of the invoice’s total value (which is usually between 70% and 90%). This means the exporter gets most of its money right away.
- Collection:
Now, the task of securing the full payment from the foreign buyer falls to the factoring company. They take charge of the collection process, managing all communications and follow-ups to make sure the payment comes through.
- Final Payment:
After the factoring company successfully collects the total amount from the foreign buyer, they send the exporter the remaining balance of the original invoice. From this final payment, the factor deducts their agreed-upon fees and any interest that applies for the services rendered.
After the factor is paid, they send the exporter the remaining amount, less any fees and interest.
Also Read: Global Factoring in Malaysia: A Game Changer for Exporters & Importers
So, here is the essential information of this factoring.
M1 NXT is one of the global factoring solutions providers of export factoring. It serves as a highly effective export factoring tool for Singaporean businesses by:
- Accelerating cash flow: It allows immediate monetisation of international invoices, providing quick access to working capital instead of waiting for long overseas payment terms.
- Easing administrative tasks: By allowing factors to manage complicated international collections, it helps Singaporean companies avoid the hassle of cross-border paperwork.
- Ensuring competitive opportunities: As a digital marketplace, it links businesses to a broader, competitive network of global financiers, helping them secure better rates.
- Offering regulated security: With its IFSCA regulation, it creates a reliable and compliant space for international trade finance.
Conclusion
By diving into the benefits of export factoring, businesses in Singapore have discovered it can be a fantastic way to handle trade receivables. They also learn important things about how the whole process works.
M1 NXT gives Singaporean businesses a cutting-edge, effective, and safe way to address the long-standing issues of international trade finance. It allows them to get payments faster and run their international operations with more assurance and liquidity.