The export overdraft is a procedure designed to make overseas and international trade possible without the often present obstacles of meticulous documentation and financial risks that come with it. The said method benefits established companies, startups, small to medium scale enterprises and businesses in recovery.
The very charm of export overdraft lies in its ability to deter and minimize the risks involved with overseas trading. Businesses would of course want to expand their reach and take advantage of foreign markets but because of factors like credit, interest rate and currency risks and not to mention legislation and documentation, many entrepreneurs can feel intimidated.
Furthermore, the physical distance creates a huge lag in terms of payment collection. Remember that many buyers, especially importers, prefer to defer payment until the goods have been shipped and delivered or until they have been resold. This can create liquidity and cash flow problems for the company.
Lastly, international trade will require companies to open up and increase their administrative manpower and resources to man the operations at particular overseas sites. Laws, regulations, standards, duties, taxes, tariffs, language and culture will have to be considered too which requires a lot of work, time and money. Fortunately, all these can be fixed with the help of an export overdraft.
But how does such method work? To better explain, we’ve made a brief timeline on the basic procedures and processes involved in its use. Take a look.
Step 1: A factoring company is chosen and an application is made. Certain requirements will have to be produced depending on the mandates of the factor. Creditworthiness shall be checked as well.
Step 2: Upon approval, the goods for export are shipped to the importer. The provider shall also release the advance on the value of the sales invoice to the exporting entity.
Step 3: The factor shall take on the burden of collection and assume all other tasks related to it thus it shall provide for the assignment notice for the invoice. Such document is written in the importer’s language or in English, whichever is preferred and used for business transactions and documents in their country. All of this is done in compliance to the rules and legislation.
Step 4: Upon complete transfer of the goods, a proof of delivery is obtained. Assignment and verification checks shall likewise be done.
Step 5: Collection for payments is done in the importer’s currency but the advance provided to the business is in their country’s monetary denomination. This is one of the many benefits of export overdraft.