International & Export Invoice Finance

International and export invoice finance is a short-term finance facility that allows businesses to sell their receivables to a factoring company, at a discounted price, in exchange for an advance on the value of their invoice.

In an increasingly connected and globalised world, millions of goods and services are traded across borders. However, exporters still expect to get paid before they ship their products, whilst importers still expect to pay their invoices once the goods arrive.

For businesses dealing with international trade, these disagreements can cause large cash flow disruptions. Exporters can find themselves waiting 60 or even 90 days to get paid after the goods have been shipped.

This million-pound discrepancy can be mitigated thanks to international invoice finance and, more specifically, international invoice discounting or factoring. These finance facilities help companies fund international trade in two distinct ways.

Firstly, international invoice finance can help UK companies with overseas subsidiaries fund any international invoices they may have. For example, if you have a recruitment agency in the UK with a subsidiary branch in the U.S, you can use international invoice finance to fund national or international invoices from that branch.

Secondly, invoice financing can help fund any international invoices within the UK. If you are a global recruitment agency working with international clients, you can use export invoice financing to fund outstanding invoices.


What is international factoring?

International factoring is the process of selling your international buyer’s outstanding invoices to a factoring company in your country. The outstanding receivables will be sold at a discounted price in exchange for a predetermined cash advance. This type of trade financing helps act as insurance for the exporter.

Instead of waiting weeks or even months to get the money you are owed, you can use international factoring to cover expenses and finance your business. International factoring is just like invoice factoring, but the buyer and seller find themselves in different countries.

International factoring is a type of asset-based finance that doesn’t typically require businesses to put up any hard assets as collateral. The factoring company will evaluate the credit history of your clients and decide whether to finance their unpaid invoices.

Once the financial reputation of the importer is cleared, the goods are shipped, and all the necessary documents are received, the factoring company will release the funds. The exporter can now use this cash to pay their employees, complete projects, or expand their business.

The factoring company will become responsible for collecting the payment. International factoring allows businesses to receive a majority of the cash they are owed up front, whilst the factoring company chases the unpaid invoices.

What is international invoice discounting?

International invoice discounting is when a seller uses their accounts receivables as leverage to receive up to 100% of the value of their export invoices. The lender gives the exporter instant access to cash in exchange for a fee.

Outstanding payments in the global trade sector can take as little as 30 days or as many as 120 to be fulfilled. Businesses need a steady cash flow in order to operate and international invoice discounting helps international exporters plug this cash-flow gap.

This helps exporters receive outstanding funds as soon as an invoice is received. Once the outstanding payment is collected from the debtor, the lender will transfer the remaining balance to the exporter, minus any fees.

It’s similar to international invoice factoring, however, the exporter remains in charge of collecting the payment from their overseas customers. 


How does export invoice finance work?

First things first, the client must make a purchase order from the exporting entity. Depending on the agreement, the buyer will have anywhere from 30 to 120 days to complete the payment.

Once the payment terms are agreed upon, the exporter creates an invoice and passes this onto the factoring company. The factoring company releases up to 100% of the total invoice value in as little as 24 hours, giving the exporter instant access to their working capital.

The international invoice finance company will release the rest of the money, minus any deductible factoring fees, once the payment is collected from the debtor. The factor collects the money in the foreign country on behalf of the seller.

This type of finance can help exporters manage and strengthen their relationships with overseas clients. International factoring companies can approach the buyer’s clients in their local language and deal with local customs too.

Advantages of international and export invoice finance

International trade is much more complicated than operating at a local or national level. Large orders combined with late payment terms create disruptive gaps in the cash flow of businesses that deal with global trade. No matter the industry, without a finance facility or export insurer, it could be very difficult for international trade deals to occur.

The largest advantage of international invoice finance is that companies can increase their revenue and fuel growth. For example, a company may not have the capital to fulfil the orders unless invoices are paid. International invoice financing can help companies gain access to cash before their debtors pay for their orders.

Not only does this give businesses a higher cash availability, but it also allows them to benefit from more free time. You won’t have to chase after clients or wait to get paid. Instead, you can focus on other aspects of your business.

International and export invoice finance helps facilitate trade and increase trust between buyers and sellers. Business is carried out with the help of a third party and this middle-man can help overcome any problems relating to foreign languages or customs.

International orders tend to be high in volume and thousands of pounds can be lost with one sour deal. Invoice financing helps companies protect themselves against bad debts and reduces the risk of foreign customers declaring insolvency, as lenders can help scope out current and prospective overseas clients.


What is back-to-back trade finance?

Back-to-back trade finance is when two separate letters of credit are used to facilitate and finance international trade deals. This back-to-back letter of credit minimises risk by adding an extra layer of security to the transaction.

The buyer sends the intermediary a letter of credit (LC) and this third party submits the primary LC to the bank as a form of collateral. Once the bank has received the primary LC, it then asks for another LC to be granted to the final supplier once goods are received. The secondary LC is only issued once the primary LC is received as collateral.

What is export trade finance?

Export trade finance is a short-term finance facility provided to companies that deal with international trade.

When a business exports goods or services, they need the working capital to fulfil orders as well as the assurance that they will be paid on time. Export trade finance includes a wide range of financing techniques, including asset-based financings, such as international invoice discounting and factoring.

For example, if an exporter receives a large order, the importer may not be ready to pay for this until the shipment arrives but the seller may need the cash in advance to produce the goods. This is where export trade finance can help mitigate the risk of delayed payments and bridge substantial cash-flow gaps.

What is import trade finance?

Import trade finance is a type of financing that helps buyers purchase goods or services on an international scale. It gives business owners access to the working capital they need to purchase goods and bring them into the country.

Paying for orders upfront allows business owners to negotiate better prices with their suppliers, foster healthy relationships with their exporters, and encourage faster shipping times.

Import trade finance allows businesses to pay their suppliers for their overseas goods or services without credit limitations or delays. Import trade finance also helps maximise profits, as it allows buyers to mitigate the risk of volatile currency fluctuations.

How does export factoring work?

Export financing allows businesses to receive an advance on the cash they are owed by submitting their outstanding invoices to a factoring company.

Once payment terms are finalised and an invoice is drawn up, this outstanding payment is passed on to the factoring company for review. As soon as the invoice is cleared, the factoring company releases up to 100% of the invoice value.

You receive the cash you need upfront that can be used to purchase more stock, pay for shipping, or simply cover expenses. The factoring company is then in charge of chasing after your international invoice. Once the debtor pays the outstanding amount, the lender will release the remaining funds, minus any deductible factoring fees.

International suppliers often need working capital in order to finance the orders they receive. Export factoring allows companies to engage in international trade as effortlessly and securely as possible.

Our Platform

Sonovate offers its customers an easy-to-use and centralised invoice finance platform. You can keep track of all credit checks, invoices, and timesheets from a single app.

With the click of a button, you have access to financial forecasting, timesheets, and many other features in real-time. If you’re interested in learning more about our services, book a consultation with us today.